Facts
Trader Media Group operated the Auto Trader website, which
included an area that enabled customers to obtain quotes for car
insurance from a panel of insurers. This "insurance centre" was run
by an independent insurance intermediary, Budget Insurance Services
Limited, using its trading name, Compare the Market.
Customers using the insurance centre would click on the "get a
quote" button, which opened a co-branded Auto Trader and Compare
the Market page. They would then answer a series of questions set
by Budget and would be able to arrange their cover immediately by
clicking on one of the quotes that appeared in a comparison
table.
The relationship between Trader Media and Budget was governed by
an Introducer Agreement entered into in 2005. Under this agreement,
Trader Media introduced prospective insurance clients via its Auto
Trader website and received a fixed commission for each concluded
insurance contract. Both parties took an active part in monitoring,
developing and improving the online service.
The VAT exemption
The issue was whether the services Trader Media supplied to
Budget fell within the VAT exemption.
Insurance and reinsurance are exempt from VAT under Directive
2006/112 (which replaced the Sixth VAT Directive on 1st January
2007). So are the services of an "insurance intermediary" when
performed by insurance brokers and insurance agents. No definition
is given of broker or agent, or of related services.
UK VAT legislation defines the services of an insurance
intermediary as including the "bringing together", with a view to
taking out insurance, persons seeking insurance and insurance
providers, and the carrying out of work preparatory to the
conclusion of the insurance contract.
Trader Media argued that the exemption applied because it was
acting as an insurance agent or broker and it provided the services
of an insurance intermediary in introducing people who wanted
insurance with a view to the conclusion of a contract of
insurance.
But HM Revenue and Customs said that Trader Media was only
obliged under the agreement to provide a hyperlink and some
branding. It did not conduct a regulated activity, nor was it
authorised as an insurance intermediary under the Financial
Services and Markets Act 2000. With no authority to bind the
insurer or act on behalf of the proposer, it was no more than an
introducer and so the exemption did not apply.
HMRC's arguments relied heavily on the London VAT Tribunal
decision in InsuranceWide [2007], where the tribunal held that a
person operating a comparison website was merely an introducer and
not an insurance agent.
The tribunal in that case found that the exemption requires the
person to be both an insurance agent or broker and to be acting as
an intermediary. InsuranceWide, the tribunal found, could not be
distinguished from an introducer or advertiser. In particular, it
had no authority to bind the insurer, which was one of the
indicators of an "agency" relationship.
Decision
The tribunal held that the exemption applied.
In the absence of any definition of insurance broker or agent in
the Directive or UK VAT legislation, the tribunal turned to the
definition of "insurance mediation" in the Insurance Mediation
Directive 2002/92, which specifically includes activities of
"introducing, proposing or carrying out other work preparatory to
the conclusion of contracts of insurance…".
UK VAT legislation includes "bringing together" in the
definition of the services of an insurance intermediary, but there
is no simultaneous requirement for the introducing to be
preparatory to the conclusion of the contact, as the Directive
seems to suggest. In this sense, the tribunal thought the
domestic legislation was broader.
HMRC guidance on the exemption emphasises that brokers and
agents are defined in terms of what they do rather than what they
are, and that the exemption does not only apply to professional
brokers but also to other intermediaries making supplies of
"related services".
Trader Media was providing intermediary services by bringing
together parties with a view to taking insurance and, by virtue of
providing such services, was an insurance agent or broker. As
introducer, it was the first link in a chain of activities that
ended with the conclusion of the contract of insurance.
It was not necessary for an intermediary to be authorised under
FSMA to qualify for the VAT exemption. Nor did the intermediary
need to have the power to bind the insurer or act for the proposer.
The act of introducing or bringing together was sufficient to
satisfy the legal requirement to be an intermediary.
The tribunal was also satisfied that Trader Media's activities
went beyond advertising. It endorsed Budget, the quotation process
and the panel of insurers to its customer base, was paid per
take-up of insurance contract and actively collaborated with Budget
on developing the service.
Commentary
The decision focuses on what intermediaries do rather than what
they are and, in doing so, widens the pool of those who might
qualify for the VAT exemption.
But how to reconcile it with InsuranceWide, where the
circumstances were similar but the tribunal held Insurancewide was
not an insurance agent?
That case considered the definition of brokers and agents in
Directive 77/92, which preceded (and was repealed in 2002 by) the
Insurance Mediation Directive. The old Directive, although it
refers to "bringing together", did so in the context of a
"professional" relationship.
This tribunal commented "it is more helpful if one looks at the
current Directive…which provides a more functional definition of
insurance intermediary". The preamble to the Insurance Mediation
Directive talks of "various types of persons" distributing
insurance products.
In the view of this tribunal, "contemporary agents and brokers
such as internet sellers, estate agents, travel agents and so on
may play a more passive role, given the standard form questions,
fixed contracts and online quotation but this does not mean they
are not providing a service which is insurance mediation".
The case serves to highlight the fact that the difference
between a "passive" introducer/advertiser and an "active"
intermediary will often be very subtle.
