Policy paper

VAT deduction on insurance intermediary services supplied outside the UK

Published 10 November 2025

Purpose of this brief

This brief explains a change in the right to input tax deduction for insurance intermediary services supplied outside the UK before 31 December 2023. This follows the First-tier Tribunal decision in Hastings Insurance Services Ltd (2025) UKFTT 275 (TC) released on 3 March 2025.

Who should read this brief

This brief is relevant to:

• insurers
• insurance intermediaries, such as insurance brokers or agents, supplying services connected to insurance
• tax advisers

Background

Insurance related services are generally exempt from VAT. This means businesses do not charge VAT on their supplies of exempt insurance services and are unable to deduct the VAT they have incurred in making those supplies.

The Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SSO) allows businesses that make certain supplies of financial and insurance services to persons who belong outside the UK (outside the EU before 1 January 2021), known as specified supplies, to deduct the input tax incurred in making those supplies. Such specified supplies include supplies by insurance intermediaries to a person located outside the UK.

At Budget 2018, the then government announced amendments to the SSO to restrict the right to deduct input tax for insurance intermediary services to circumstances where the final consumer (the insured party) belonged outside the UK. This was implemented by the introduction of Article 3A in the SSO, which came into effect from 1 March 2019.

This legislative amendment was challenged on the basis of being incompatible with the EU Principal VAT Directive 2006/112/EC in the case Hastings Insurance Services Ltd (2025) UKFTT 275 (TC).

At that time, section 4 of the European Union (Withdrawal) Act 2018 (EUWA 2018) preserved the right to apply the direct effect of EU law provided that where such rights arise from a directive, they must be of a kind recognised by the Court of Justice of the European Union or a domestic court prior to 31 December 2020. Those EU rights will prevail over inconsistent domestic legislation made before implementation period completion day but are subject to domestic legislation made after implementation period completion day (see Section 5(1) and (2) of that Act).

The First-tier Tribunal Decision

The First-tier Tribunal found that Article 3A of the SSO was not compatible with Article 169(c) of the principal VAT directive and that Hastings was entitled to rely on the direct effect of EU law to recover their related input tax.

Article 3A of the SSO was implemented before the UK left the EU and the First-tier Tribunal considered whether the direct effect continued after 31 December 2020, the end of the implementation period following the UK’s withdrawal from the EU. The First-tier Tribunal found that Hastings could continue to rely on the direct effect of EU law after 31 December 2020 by virtue of section 4 of EUWA 2018.

HMRC has not appealed the First-tier Tribunal decision.

HMRC Policy

HMRC accepts the First-tier Tribunal’s finding that Article 3A is not compatible with Article 169(c) of the principal VAT directive. This means that insurance intermediaries supplying services outside the UK can rely on direct effect of EU law to recover relevant input tax incurred prior to 1 January 2024, whether the insured party is in the UK or not.

From 1 January 2024, section 4 of EUWA 2018 was repealed by section 2 of the Retained EU Law (Revocation and Reform) Act 2023. This means that it is no longer possible to rely on directly effective rights, nor to disapply domestic legislation that is inconsistent with such rights or any other aspect of EU law. Section 28, Finance Act 2024 means that UK VAT and excise legislation will continue to be interpreted in the same way as it was before 1 January 2024, with the exception that businesses will no longer be able to rely on the ‘direct effect’ of EU law. It is no longer possible for any part of UK legislation to be quashed or disapplied on the basis that it is incompatible with EU law, as UK law is now supreme.

From 1 January 2024, Article 169(c) of the principal VAT directive cannot be relied upon and Article 3A of the SSO restricts the right to deduct input tax for insurance intermediary services to circumstances where the final consumer (the insured party) belongs outside the UK.

What to do if you think you are affected

Insurance intermediaries supplying relevant services outside the UK can review their input tax recovery on specified supplies made in respect of prescribed accounting periods ending on or before 31 December 2023. If they consider they have a claim for under-recovered input tax they should follow the rules on how to correct errors and make adjustments or claims and where appropriate submit an error correction notice to HMRC, subject to the 4 year time limit.

The claim should include:

• documentary evidence to support the right to deduct
• your revised partial exemption calculations if you are partially exempt

Further help

If you need further information, you can contact HMRC online or find more information in:

• Insurance (VAT Notice 701/36)
• Partial exemption (VAT Notice 706)
• How to correct VAT errors and make adjustments or claims (VAT Notice 700/45)