HMRC and Insurancewide The End 3/3

This is the third in a three part series (see parts one and two) on a legal case with HMRC taken up against two major comparison sites and aggregators: Autotrader and Insurancewide. This personal transcript is taken from an Insider (General Manager) at Insurancewide, Keith Sholl

So we move forward into 2010 and the Court of Appeal held in March. Due to the circumstances that prevailed Insurancewide had no legal representation at the hearing and, unfortunately, neither was I able to attend court and, therefore, I am unable to provide testimony as to the drama that may have been enacted during the course of those proceedings. Nevertheless, the decision announced on 22nd April is dramatic enough in that the three Judges each found in favour of the Respondents in their unanimous dismissal of the appeal by HMRC.

In summing up the Judges set out what they saw as the key principles in the case, which included the following:-

“Whether or not a person is an insurance broker or an insurance agent, within Article 13(B) depends on what they do.”

“It is an essential characteristic of an insurance broker or an insurance agent, within Article 13B(a), that they are engaged in the business of putting insurance companies in touch with potential clients or, more generally, acting as intermediaries between insurance companies and clients or potential clients.”

And in deliberating on whether those principles had been met the judges found in favour of both Insurancewide and Trader Media, thus:-

…..It is sufficient that they were providing services characteristic of an insurance broker or agent, and which were vital to the process of introducing those seeking insurance with insurers, even if they were only part of a chain of such persons…..

I sense a strange feeling of déjà vu in reading these conclusions – but wait isn’t that exactly what HMRC say within their own internal manuals on the matter of insurance intermediary services – as highlighted in the following extracts.

“VATINS5205 – Services of an insurance intermediary: Insurance brokers and insurance agents: General
There is no definition of either insurance broker or insurance agent within UK or EC VAT law. Whereas the profession of an insurance broker is well recognised, however, this is not so true of an insurance agent and this can sometimes cause problems.

For the purposes of the VAT exemption we recognise an insurance agent as anyone who provides insurance related services in an intermediary capacity.”

“VATINS1310 – General Introduction and the law: Legal Notes to Group 2:
Legal Note 1: Services of an Insurance Intermediary

1 For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs –

a. the bringing together, with a view to the insurance or reinsurance of risks, of -

(i) persons who are or may be seeking insurance or reinsurance, and
(ii) persons who provide insurance or reinsurance; …………… “

For the sake of brevity (ha! ha!), I have included only the relevant paragraph above but the other 3 can be seen by viewing the documents online here

“VATINS1320 – General Introduction and the law: Legal Notes to Group 2:
Legal Note 2: Acting in a intermediary capacity

2 For the purposes of item 4 an insurance broker or insurance agent is acting “in an intermediary capacity” wherever he is acting as an intermediary, or one of the intermediaries, between -

1. a person who provides insurance or reinsurance and
2. a person who is or may be seeking insurance or reinsurance or is an insured person.”

Given the correlation between the findings of the courts and HMRC’s own guidance notes on the matter of Insurance Intermediary Services and also given that, within the general guidance on their website, HMRC state that they are committed to “resolve disputes by exploring all reasonable possibilities of settlement locally”, it is extraordinary that this matter should even have got as far as Tribunal let alone the High Court and subsequently to the Court of Appeal. This has truly been a “Comedy of Errors” and whilst the courts are not necessarily to blame in this instance, it brought a smile to my face to find that this most farcical of Shakespeare’s plays was first performed at Gray’s Inn in 1598. Apparently, according to this article on Suite101, Shakespeare took the opportunity to revise the play and added two trial scenes, which he knew would amuse the audience of legal students.

So we have a Phyrric Victory for Insurancewide and a victory without Ovatio

It can but be hoped that after 5 years of unnecessary conflict sense will now prevail and that the Commissioners will be persuaded by the refusal of the Judges at the Court of Appeal to recommend a referral to the ECJ to finally let the matter rest.

Regrettably such a decision, if it comes at all, will arrive too late for Insurancewide but it will at least allow Trader Media to get on with its business without a distraction that is both unnecessary and expensive. It would also permit the Insolvency Practitioners to proceed with the distribution of such assets that remain of Insurancewide amongst the Company’s creditors, which includes all of the staff.

It is wrong that tax authorities in this country should be allowed to waste tax payer’s money in such futile cases, especially where they are acting in direct contradiction of their own published guidelines. In other countries the tax authorities are not immune from legal action against them in such situations and if that were to be the case in the UK also then perhaps those responsible would go to greater lengths to ensure that they have a better understanding of the facts before embarking on needless and expensive legal procedures.

As it is, despite having been awarded costs in this case, it transpires that those costs are only recoverable in part and even a recovery of 50% (say) is not without close scrutiny and contest by the lawyers acting for the Commissioners. Also, whereas the basis for the recovery of costs at Tribunal is relatively liberal, in that, the advice of the Company’s accountants in this matter is a recoverable expense, when it comes to the higher Courts, recovery is restricted to those costs incurred in the provision of legal representation only.

Of course the true cost of this case is far more than the hundreds of thousands of pounds expended in fighting the legal battle.

Many thanks to Keith Sholl for this in depth look at the trials and tribulations of aggregator industry. For more great articles and industry secrets, subscribe by email, to our twitter feed or our RSS news feed