OVATio, OVATio, wherefore art thou OVATio HMRC vs Comparison Sites 1/3

This is the first in a three part series 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

Back in April 2007, immediately prior to the opening of the initial Tribunal in the case of Insurancewide v HMRC, I recall our counsel Roderick Cordara QC advising us as Appellants, that the Court could be likened to a Theatre and the proceedings likened to a play, albeit one in which the actors had different scripts. However, what Roderick did not advise was that the nature of the play was likely to be that of a farce, although in hindsight with such differing scripts and ones that, at least in so far as the Respondents were concerned, kept changing as the play progressed, the comic outcome was perhaps inevitable.

Nevertheless subsequently we have also been witness to intrigue, drama and alas tragedy as well, since as a direct result of the announcement by HMRC to take the battle to the Court of Appeal, without the funds to further the cause, the decision was taken that Insurancewide should cease trading. The battle with HMRC extends back to January 2005, when following a seemingly innocuous enough visit by two VAT inspectors we received a letter advising that Insurancewide was not deemed to be acting in an intermediary capacity and, therefore, would be subject to VAT at the standard rate on the entirety of its income extending back to inception in 1999.

At that stage the suggestion was that Insurancewide was simply a provider of software that facilitated a connection between individuals seeking insurance and providers of insurance, nothing more (my thoughts on this were contained in this email). Although, subsequently, on day five of the hearing the Commissioners proposed and were permitted to submit an amendment to their Statement of Case, which suggested that the services provided by Insurancewide consisted of supplies of market research, product design, advertising, promotional and/or similar services, which were not exempt supplies.

Unfortunately, it seems that the bench relied heavily on this revised submission in their determination of the activity of Insurancewide in what was termed the “Cox Period”, in that they ruled on the activity during that period, as follows:-

…..Insurancewide was in our judgment nothing more than an introducer and its role at that time cannot be properly distinguished from that of an advertiser in that via its website it had no interaction with either party beyond making the one aware of the other and providing a means of the one contacting the other. Its activities during that period did not come within either the requirements of the Directive or the VATA, but came within those described in Note 7(a) to Group 2 of Schedule 9 of the VATA as a supply of ‘advertising…or similar services’ and as such are excluded from the exemption.

The farce is that in making this ruling there was a complete lack of regard for the substantive amount of evidence presented as regards the “Cox Period” which showed not only that the whole process on the website from quote to sale and beyond was carried out in the name of Insurancewide but also the fact that all of the policy documentation was issued in the name of Insurancewide as were all subsequent communications, including amendments to policies, renewal notices and any correspondence with regard to claims. In that knowledge it was ludicrous to suggest that all we were doing was providing advertising, who exactly were we supposed to have been providing advertising for – Insurancewide?

That is just one example amongst many as to the farcical nature of that initial decision.

I will not go into detail with regard to the other anomalies, although it is amusing to relate an incident that occurred at a second meeting with the inspectors prior to the Tribunal at which the question was posed, given the facts described above, if they did not consider Insurancewide to be providing services that were VAT exempt to give an example of an insurance provider that was considered to be doing so. The answer that the inspector in question chose from personal experience was a policy taken out with the Nationwide Building Society. We pointed out that insurance policies issued by Nationwide were provided under an affinity arrangement with an insurance company where the documentation was simply branded as Nationwide. In effect no different to the arrangement between Insurancewide and Cox Insurance, although the inspectors were unable to see the correlation – they remained adamant that Nationwide were providing insurance but could not agree that Insurancewide were doing likewise.

However, this was not true of those representing the Commissioners at the Tribunal who became visibly uncomfortable in the face of the mounting evidence being submitted as the trial progressed and this is where the intrigue begins. In the lull between the first two days of the hearing, held in April of 2007 and the last three days in July of the same year we were invited to attend a meeting with HMRC Policy Branch. At that meeting a deal was proposed whereby the Commissioners would accept the appeal for VAT exemption in so far as the services provided by Insurancewide during the “Cox Period” were concerned on the basis that the Tribunal would then be able to consider each of the subsequent periods in isolation rather than as a whole. This offer was rejected and not least because, owing to the substantial start up costs incurred Insurancewide had been trading at a loss during its formative years and thus, the effect of losing on the latter periods whilst winning on the prior period would have been to significantly increase the potential liability to unpaid VAT. My own reaction to this meeting was contained in an email that I sent to James Harrison, which you can read here.

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