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HMRC internal manual

VAT Insurance

Services of insurance intermediary: Insurance supplied with other goods and services -Legal notes (3)-(5): General

The following paragraphs are important in determining the liability of an intermediary’s services when insurance is sold with taxable (but not zero rated)goods or services.

In many instances where a business sells goods or services, insurance relating to those goods or services is often made available. In these instances the supplier of the goods or services usually arranges the insurance and may be regarded, therefore, as acting as an intermediary in the provision of the insurance.

These services of arranging insurance are exempt from VAT. However, where the insurance is sold with taxable goods or services certain provisions must be met in order to treat the insurance related services as exempt. These are detailed at paragraph VATINS5720.

These provisions also apply where, instead of the retailer selling the insurance with the taxable goods, a person connected with them arranges the insurance and deals directly with the customer. Legal note (6) to Group 2 provides that the definition of connected persons is derived from section 839 Taxes Act 1988, a copy of which is reproduced in VATINS9100 at the end of this guidance.

These provisions were introduced in 1997 to help counter value shifting – see VATINS7500. The preamble to Article 131 of the Principal VAT Directive allows member states to introduce measures such as these to prevent tax evasion,avoidance or abuse – see VATINS1100.

There are many examples of insurance products sold in a package with taxable goods or services and they include:

  • mechanical breakdown insurance (MBI) sold with cars;
  • travel insurance;
  • insurance against the breakdown of, or damage to, white or brown goods; or
  • property and liability insurance for tenants of a building, complex, etc (where an option to tax has been exercised).