Executive summary

 The First-tier Tribunal (“FTT”) has concluded in Hastings Insurance Services Limited [2025] UKFTT 275 (TC) that the VAT (Input Tax) (Specified Supplies) (Amendment) Order 2018 (SI 2018/1328) (the “Offshore Looping Order”) is ultra vires and so can be disregarded by taxpayers.  This means that UK-based insurance intermediaries can recover input tax incurred on supplies to non-EU insurers even where it concerns policies with UK policyholders.

Background

•  Hastings is a UK company which made supplies of insurance broking services to Advantage Insurance Company Ltd (“Advantage”), a Gibraltar company which made supplies of insurance to UK policyholders.

• Under EU law, insurance transactions (including related services performed by insurance brokers) are exempt from VAT, and UK law contains an equivalent exemption in Schedule 9 of the VAT Act 1994.  Under general VAT rules, service providers such as Hastings would not be able to recover the input tax incurred in relation to these exempt supplies.  However, Article 169(c) of the EU Principal VAT Directive (“PVD”) contains an exception to allow for input tax recovery if those same exempt services are provided to a customer outside the EU.

• The same exception was implemented in the UK via the VAT (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121) (the “SSO”).  However, following an earlier Hastings decision from 2018, the Offshore Looping Order was introduced amending the SSO such that UK insurance intermediaries became entitled to recover VAT only where the underlying policyholder is based outside the UK.

• In 2023, Hastings submitted a claim to HMRC for the recovery of input tax attributable to supplies made to Advantage, relating to two periods: (i) 1 January 2019 to 31 December 2020 (“Period 1”), and (ii) 1 January 2021 to 31 December 2022 (“Period 2”). This was made on the basis that the Offshore Looping Order was ultra vires EU law and so Hastings could disregard it, instead relying on the direct effect of Article 169(c) PVD.

FTT decision

•  The FTT agreed that the word “customer” in Article 169(c) PVD has to be interpreted as the ‘VAT recipient’ of the supply, so it was not possible to look through a non-EU recipient of a supply of intermediation services and further restrict the application of Article 169(c) PVD on the basis of the place of belonging of the final consumer.
• The FTT also concluded that Article 169(c) PVD met the requirements of being unconditional and sufficiently precise to have had direct effect prior to Brexit. Therefore, for Period 1, Hastings was entitled to rely on the direct effect of Article 169(c) PVD to deduct input tax.
• Period 2 was subject to the EU (Withdrawal) Act 2018 (“EUWA”). Section 4, EUWA provided that directly effective rights from an EU VAT Directive which were recognised and enforced before Brexit by the CJEU or any UK court or tribunal in a case decided before 31 December 2020, or were “of a kind” so recognised, continued to have force in UK law post-Brexit.
• The FTT took the view that Article 169 had been recognised as having direct effect in CJEU and UK case law prior to Brexit and, even if it hadn’t, it was of a kind so recognised because Article 168 had been recognised as having direct effect. Therefore, section 4, EUWA enabled Hastings to rely on the direct effect of Article 169(c) PVD for Period 2.

Next steps

• It is not yet clear whether this decision will be appealed further, but in the meantime, this decision gives a clear basis for taxpayers who restricted input tax deduction in line with the Offshore Looping Order to make claims for the period when the EUWA was in force, up until 31 December 2023.
• As these periods are falling out of time in relation to the four-year cap, we recommend that these claims are made as soon as possible and, if HMRC rejects them on the basis of an intention to appeal this decision, those rejections can be appealed and stayed pending the resolution of this lead case.
• The decision is notably unclear on the position from 1 January 2024, when the Retained EU Law (Revocation and Reform) Act 2023 (“REULA”) came into force. The decision highlights that section 2, REULA repeals section 4, EUWA, but it fails to mention that section 28 of the Finance Act 2024 limits the impact of REULA on the provisions of EUWA insofar as concerns VAT and excise law, including specifically providing that section 4, EUWA continues to have effect for the purpose of interpreting VAT and excise law, despite section 2, REULA. 
• The interplay of EUWA, REULA, and section 28 of the Finance Act 2024 is unclear, and remains untested, but it is feasible that claims could continue to be made beyond 1 January 2024. Any HMRC challenge to such claims would, however, need to be litigated separately as this issue is not considered in the current Hastings  We would be happy to discuss with you further any claims to be made post-1 January 2024 prior to their submission.