The First-tier Tax Tribunal’s decision in Hastings Insurance Services Ltd v HMRC [2025] UKFTT 275 (TC) marks a turning point for VAT recovery rights in the UK insurance intermediary sector. The Tribunal found in favour of Hastings, holding that input VAT was recoverable on services supplied to a Gibraltar-based insurer, even where the insured policyholders resided in the UK. The case scrutinised HMRC’s restrictive interpretation of the Specified Supplies Order as amended in 2019 and challenged the domestic application of the so-called “Offshore Looping Regulations” under the retained EU VAT regime.
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Background of the Dispute Between Hastings Insurance and HMRC
Hastings Insurance Services Ltd is a UK-based intermediary acting on behalf of Advantage Insurance Company Limited, an insurer incorporated in Gibraltar. Hastings provided underwriting and broking services to Advantage, which ultimately issued insurance policies to UK customers. The dispute arose when HMRC refused to allow Hastings to recover input VAT for the period 1 January 2019 to 31 December 2022, relying on the 2019 amendments to the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121), as amended by SI 2018/1328. HMRC argued that since the underlying insurance was consumed by UK customers, the intermediary could not reclaim VAT under the exemption for services supplied to non-UK entities.
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What is the Tax Tribunal’s Approach to VAT Recovery?
At the heart of Hastings’ argument was Article 169(c) of the Principal VAT Directive (2006/112/EC), which allows a taxable person to deduct VAT incurred on services supplied to customers established outside the European Union. Hastings maintained that Advantage Insurance was the direct recipient of its services and was established outside the UK and EU, entitling it to full VAT recovery. The Tribunal agreed, reaffirming that Article 169(c) has direct effect and is sufficiently clear and precise to confer rights enforceable in UK law even post-Brexit, by virtue of section 4 of the European Union (Withdrawal) Act 2018.
Determining the “Customer” in Cross-Border Insurance Transactions
The Tribunal placed particular emphasis on identifying the true recipient of the intermediary services for VAT purposes. It rejected HMRC’s argument that the UK policyholders were the ultimate customers, finding instead that Advantage Insurance—the Gibraltar-based entity—was the contracting party and recipient of the taxable supply.
What is the Post-Brexit Legal Effect of EU VAT Provisions in the UK?
The Tribunal reinforced that, under section 4 of the EU (Withdrawal) Act 2018, rights previously recognized under EU law, including those derived from the Principal VAT Directive, continue to have effect in the UK legal framework post-Brexit, so long as they were directly effective before the end of the transition period. The judgment emphasized that domestic legislation cannot be interpreted in a vacuum and must be aligned with higher-order retained rights.
Impact of the Tribunal’s Ruling on the Insurance Sector
The Hastings ruling could have wide-ranging implications for other intermediaries supplying services to non-UK insurers. Many firms previously blocked from reclaiming VAT under the amended Specified Supplies Order may now be able to pursue historical claims. Tax and legal practitioners should carefully evaluate past VAT treatment where intermediary services were provided cross-border. The Tribunal’s judgment is particularly relevant for periods up to 31 December 2023, given that further amendments have since taken effect under the Finance Act 2023. Although HMRC is expected to appeal, the decision currently stands as a persuasive precedent for intermediaries operating in international markets.
Legal Strategy for Insurance Intermediaries On VAT Disputes
Insurance firms and intermediaries should immediately assess their entitlement to reclaim VAT on historic supplies made to overseas insurers. Submitting protective claims with appropriate supporting documentation may be essential to preserve rights before limitation periods expire. Moreover, businesses should review contractual structures to clarify who is considered the service recipient for VAT purposes, drawing on the legal reasoning in this case. Continuous monitoring of HMRC’s response, and any further litigation or legislative revisions, is advised to maintain compliance and capitalize on potential tax efficiencies.
Conclusion: A Precedent in Favour of Cross-Border VAT Recovery
The decision in Hastings Insurance Services Ltd v HMRC underscores the continuing relevance of EU VAT principles in UK domestic law and reaffirms the rights of intermediaries to recover VAT in cross-border transactions. The Tribunal’s robust interpretation of Article 169(c) and rejection of HMRC’s narrow view of the “customer” provides a clear legal framework for VAT recovery where services are supplied to non-UK insurers. This case serves as a valuable precedent for both advisors and businesses, emphasizing the importance of correctly identifying the legal recipient of services and reinforcing the legal protections afforded under retained EU law.
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Frequently Asked Questions
1. Can UK-based insurance intermediaries recover VAT on services provided to overseas insurers?
Yes, in certain cases. If the intermediary’s services are supplied to an insurer established outside the UK, VAT on related input costs may be recoverable under the Specified Supplies regime and retained EU law. Correctly identifying the recipient of the service is key.
2. What are the Specified Supplies rules and how do they affect VAT recovery?
The Specified Supplies Order allows VAT recovery on certain exempt financial and insurance services when supplied to customers outside the UK. However, amendments in 2019 restricted these rules, particularly for services consumed within the UK, even if supplied cross-border.
3. What is a “protective VAT claim” and when should one be filed?
A protective claim is a precautionary submission to HMRC asserting a right to VAT recovery, often ahead of litigation or policy change. Businesses may file these to preserve their position within statutory time limits, typically four years from the end of the relevant VAT period.
4. How has Brexit affected VAT treatment of cross-border services?
While the UK has left the EU, many VAT rules based on EU law still apply under the European Union (Withdrawal) Act 2018. Where provisions like Article 169 of the Principal VAT Directive had direct effect, they may still form part of UK law post-Brexit.
5. Who is considered the “customer” for VAT purposes in insurance transactions?
For VAT recovery, the customer is typically the recipient of the service—not necessarily the end user. In intermediary arrangements, this is often the insurer (e.g., the entity underwriting the policy), not the individual policyholders.
6. What should intermediaries review when assessing VAT recovery eligibility?
Firms should:
- Consider past VAT treatment and whether protective claims are warranted
- Review contracts to clarify who the service recipient is
- Assess whether services qualify as “specified supplies”
- Examine the customer’s location and VAT status
7. Can HMRC decisions on VAT recovery be appealed?
Yes. If HMRC denies input VAT recovery, businesses can challenge the decision before the First-tier Tax Tribunal. Success often depends on precise legal interpretation and evidence of service structures and contractual relationships.