Hastings Insurance Services - Place of Supply

April 2018

Place of Supply - Right to deduct input tax

Hastings ('H') provided insurance broking services to a connected offshore provider of insurance Advantage ('A').

A's insurance products were sold to UK customers via H's broking services.

The VAT (Input Tax) (Specified Supplies) Order 1999 permits businesses, making specified exempt supplies to non-EU customers, to deduct related input tax.  VAT planning arrangments have thus attempted to take advantage of these rules to trigger the boon of input tax recovery which would not otherwise be available. 

HMRC have naturally tried to thwart such arrangements - indeed the decision in another similar case Newey (Ocean Finance) is expected any time soon.

The case centred on where A was established in relation to the intermediary services it received from the appellant.  HMRC argued that 'A' had a fixed establishment (FE) in the UK as well as a permanent establishment (PE) in Gibraltar. The appellant argued simply that there was no FE in the UK.

In the event of the latter the appellant would be entitled to input tax recovery under the aforementioned Specified Supplies order 1999.
In the event that HMRC were correct H's broking services would be exempt services supplied in the UK with the contingent impact of irrecoverable input tax.

The VAT legislation is not particularly clear on how to discern the presence of a FE. Consequently, a lot of legal arguments were employed in trying to demonstrate that 'A' had (or didn't have) a sufficient degree of permanence; or the requisite human and technical resources required for it to receive and consume supplies within the UK.

In this case HMRC were arguing that Advantage had a fixed establishment in the UK comprised of Hastings' human and technical resources.  Similar arrguments had proved successful for HMRC in the case of DFDS - the judge fiinding that such matters would turn on whether each business was operating indepndently of the other.  

Here, however, the FTT concluded that Hastings' resources were not available to Advantage with a sufficient degree of permanence for them to constitute its FE.

HMRC is almost certain to appeal.



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