European Court of Justice decision could mean increased tax costs for UK insurers

The European Court of Justice today released its decision in the ‘Aspiro’ case which was considering whether claims handling services should be subject to VAT under European law. Specifically, the decision found that claims handling was not within the scope of the VAT exemption for insurance related services and therefore should be subject to VAT.

Richard Insole, indirect tax partner at Deloitte, said:

“The decision in this case highlights the clear difference between the expected VAT treatment of claims handling in UK and EU law. If HMRC are required to reassess their VAT position in this area, it could result in significantly increased operating costs for UK insurers and an impact on policy premiums as a result.

“The outcome of the case will be viewed by many as unsurprising given previous judgements of the European Court in this area dating back as far as 2005. Until now, HM Revenue and Customs have resisted changing the UK’s treatment of such services on the basis that the European Commission has been undertaking a wider review of the VAT treatment of VAT and financial services. However, this exercise was recently abandoned, leaving a question mark over whether the UK can continue to support its current treatment.

“Exactly what HMRC intend to do next is not yet known, but our expectation is that following this decision, HM Revenue and Customs will come under increased pressure from the European Commission to change UK law.”

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Notes to editors

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