Measure
The government will legislate to prevent VAT structuring known as ‘looping’ that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers. This ‘looping’ allows them to reclaim VAT on costs that UK based competitors are unable to reclaim.
The measure will likely affect those UK based providers of insurance intermediary services who provide their services to insurance providers outside of the EU whose customers are located in the UK.
Following the production of draft legislation, the measure has been refined so that it only applies to insurance intermediary supplies and VAT recovery will only be restricted when the principal supply of insurance is made to consumers located within the UK, rather than within the EU as originally drafted.
Legislation is expected to be published in December 2018 and the changes will come into effect from 1 April 2019.
This measure was announced in July 2018 and is therefore a change the sector was expecting. It will have an impact on the extent to which UK providers of insurance intermediary services can recover VAT they incur on costs.