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Introduction

The VAT treatment of insurance and related services appears, on the basis of a cursory examination of the legislation, to be comparatively straightforward. Archived Directive 2006/112/EC, art 135(1)(a) deals with the topic in a single phrase: 'insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents', and even the UK enabling legislation¹ comprises less than two pages of print.

In practice, however, the legislation has given rise to some of the greatest difficulties of interpretation to be found in the field of VAT.

These difficulties arise primarily because insurers are restricted in their ability to recover VAT on costs associated with the exempt services they provide. As a result, the use of agents and brokers to sell insurance products, and the tendency to move to the 'outsourcing' of certain functions traditionally performed in-house, give rise to additional VAT costs unless it can be argued that those services also fall within the exemption. It will be clear from the above that the majority of issues arising relate not so much