Multi-million pound VAT bill for brokers

Wholesale brokers are set to face a multi-million pound tax bill following an EU ruling that VAT should be imposed on commission payments.

In a preliminary ruling on the case between the Dutch Supreme Court and Accenture (formerly Arthur Anderson) the EU Advocate General said that for brokers to be VAT exempt they should have a "direct connection with the insurer and the policyholder".

If the view is upheld by the European court it would exclude all wholesale brokers from current VAT exemptions.

Experts said the opinion was likely to become law. Deloitte head of financial service's indirect tax practice Andrew Burns explained: "The European court usually follows the Advocate General's opinion ... essentially that you cannot be called a broker unless you have a relationship with both insured and insurer. If everything he says is implemented the market will be in state of shock."

The Advocate General also drew attention to a broker's activities with regard to VAT exemption. He stated that for the exemption to apply a broker had to offer a distinct act of mediation between the relevant parties, rather than merely passing business on.

Broker Network chief executive Grant Ellis said: "It will be the end user who will have to pay. If this is implemented there will be an outcry."

The European court is expected to rule on the issue within the next nine months.