Wholesale brokers and broker chains look set to avoid being hit by VAT on commissions after Revenue and Customs released its view on the recent European tax ruling.

Customs said that the European Court of Justice's (ECJ) decision did not "preclude exemption where the provider does not itself have direct contact with the customer, provided that it sub-contracts the introductory service to a sub-agent, and there is a direct contractual link between them."

Tax experts at KPMG said that, as a result, wholesale brokers and brokers in a chain would be likely to benefit from VAT exemption.

Customs also said that outsourcers who undertake back office functions for insurers or brokers will almost certainly be hit by the 17.5% charge.

It said: "Insurance administration and claims handling services should only fall within the VAT exemption for insurance-related services where the provider had also previously introduced the policyholder to the insurer."

KPMG said: "Outsoucers who are not involved in the sales process will not be able to escape this."

Customs will begin a formal consultation process on the matter in July.

The ECJ ruled in February that VAT would be payable on outsourced activities, leading to fears that brokers would be required to pay VAT on commissions.