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HMRC internal manual

VAT Insurance

General Introduction and the Law: Law: UK Law

The UK vires for VAT exemption is found in section 31 VAT Act 1994 and the exemption for insurance is found in Group 2, Schedule 9. A revised Group 2 took effect on 19 March 1997 replacing the original Group 2. Group 2 was further amended in 2001 to take account of there placement of the Insurance Companies Act 1982 (ICA) with the Financial Services and Markets Act 2000 (FSMA). The Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 (SI 2001/3649) implemented the necessary changes to Group 2 on 1 December 2001.

In the past our legislation only allowed exemption for insurers who had been granted permission by the UK regulator, currently the Financial Services Authority (FSA), to carryout contracts of insurance or released from the requirement to gain such permission underthe FSMA (that is, “permitted insurers”).

In February 1999, however, the European Court of Justice (ECJ) gave a decision in a long running appeal by Card Protection Plan Limited (CPP). It ruled that the scope of the VAT exemption cannot be restricted exclusively to permitted insurers

Following the judgment, we accepted that UK law was too restrictive in its interpretation of EU law. Group 2 was amended in January 2005 with the removal of Items 2 and 3 so that insurance supplied by non-permitted insurers is covered by the exemption.

Please see VATINS1230 and VATINS5440 for the implications of the CPP judgment for holders of block insurance policies and pension fund management services provided by insurers respectively, and VATINS7010 for more detailed analysis of the CPP ruling.

The following paragraphs reproduce and explain each item of the current Group 2.