Insurance related services and the VAT exemption

Insurance and reinsurance transactions are exempt from VAT under item 1 of Group 2, Schedule 9 to the VAT Act 1994, and item 4 extends the exemption to services supplied by an insurance broker or agent acting as an intermediary: introducing clients to insurers, work preparatory to a contract, helping to administer policies, handling claims and collecting premiums. Exemption depends on what the service is and on the supplier sitting in the chain between insurer and insured, so marketing, valuation and most expert assessment work stay standard rated unless specific conditions are met.

What does the law actually exempt?

Group 2 has two live items. Item 1 exempts insurance and reinsurance transactions themselves, which is the insurer’s supply. Item 4 exempts the provision by an insurance broker or insurance agent of the services of an insurance intermediary where those services are related to an insurance or reinsurance transaction, whether or not a contract is finally concluded, and are provided while acting in an intermediary capacity.

Note (1) to Group 2 lists the services of an insurance intermediary:

• bringing together people who are or may be seeking insurance with people who provide it
• carrying out work preparatory to the conclusion of contracts of insurance or reinsurance
• providing assistance in the administration and performance of those contracts, including the handling of claims
• collecting premiums

Note (2) defines intermediary capacity as acting as an intermediary, or one of the intermediaries, between an insurer and a person who is or may be seeking insurance or is insured. HMRC’s guidance is VAT Notice 701/36, sections 8 to 13. Preparatory work on a risk the insurer declines is still exempt (paragraph 8.3).

Who counts as an insurance broker or agent for VAT?

HMRC defines brokers and agents by what they do rather than by their job title (Notice 701/36, paragraph 9.1). A broker normally acts for the insured in negotiating cover; an agent is often tied to particular insurers, arranging and administering policies for them. Both can exempt their insurance related services.

Paragraph 9.1.2 confirms other businesses, such as estate agents, solicitors and retailers selling extended warranties, can also supply exempt insurance related services.

The test that catches people out is intermediary capacity. Paragraph 9.2 explains that the business must be somewhere in the chain of supply of a contract of insurance, with a business at one end in contact with the insured (or potential insured) and a business at the other end in contact with the insurer. There can be several intermediaries in the chain. A broker that also supplies a service to an insurer involving no contact, direct or indirect, with insured parties is not acting as an intermediary for that service, and it is taxable even though the broker’s commission income is exempt.

Which services fall outside the exemption?

To qualify, a service must be closely related to insurance, not merely incidental to it. Secretarial and general computer services supplied to insurers are given as examples of taxable work (paragraph 8.2.2). The law then excludes particular services by name:

Excluded service	Where the rule is
Market research, product design, advertising, promotional or similar services, and collecting or providing information for those activities	Note (7)
Valuation or inspection services	Note (8)
Services of loss adjusters, average adjusters, motor assessors, surveyors and other experts, unless the claims handling conditions are met	Note (9)
Services supplied instead of paying an indemnity, or to satisfy a claim	Note (10)

The line between advertising and introducing is a frequent dispute. Where it is unclear, HMRC accepts that a business supplies introductory services if it plays an active part in the sale and meets three criteria: it is paid per successful policy take up, it targets its own customer base, and it endorses the product or insurer (paragraph 8.3.1).

Stand alone telephone helplines and mis selling review services have been taxable since 1 April 2013 (paragraphs 10.3 and 10.4), although a helpline that forms part of a single supply whose main element is exempt insurance related services stays exempt. Fees that broker fund advisers charge for investment advice, and performance fees, are taxable even though the commission for arranging the policy is exempt (paragraph 10.7). By contrast, a call centre selling cover for an insurer is exempt where it can put the insurer on risk and the customer on cover at the point of sale (paragraph 10.4.1).

When is claims handling exempt?

Claims handling covers work such as checking claim documents, confirming that the claim falls within the policy, processing it, telling insurers about their exposure, agreeing validity or quantum and arranging settlement (paragraph 8.5). Advisory or investigative elements that are minor and ancillary to the claims handling do not make it taxable.

Specialist claims handling companies, engaged for their general claims handling expertise, are exempt on the same basis as other intermediaries (paragraph 9.3.2). Loss adjusters and other experts are different: their assessment work is normally standard rated, and their claims handling is exempt only if all four conditions in Note (9) are met:

1. they handle claims under a contract of insurance or reinsurance
2. they are authorised to act on behalf of the insurer or reinsurer
3. they hold the insurer’s written authority to accept or reject the claim
4. where a claim is accepted in whole or part, they have written authority to settle the amount paid

Authority can pass through a broker if the insurer’s original authority allowed it to be delegated. Where the adjuster’s authority is capped and the claim exceeds the limit, or full written authority is not held, the service is standard rated (paragraph 9.3.3).

If an insurer settles a claim in cash, the payment is outside the scope of VAT; if it arranges a repair instead, the repairer’s service is taxable in the normal way and is usually supplied to the insured (paragraphs 5.4, 5.5 and 8.2.3). Our page on VAT on compensation and termination payments covers the wider principle.

What if a retailer or service provider sells insurance with its goods?

Notes (3) to (6) contain a disclosure rule aimed at businesses that make taxable, non zero rated supplies and arrange insurance for the same customer. Any fee for arranging the cover is exempt only if a document stating the premium and every other amount the customer pays in connection with the insurance is prepared, and the amounts are disclosed at or before the time the insurance transaction is entered into. If not, the premium passed to the insurer is still free of VAT, but the arrangement fee or commission is taxed at the same rate as the goods or services (paragraph 11.3). The rule does not apply to claims handling.

For telephone and online sales, paragraph 11.3.1 allows oral disclosure at the time of sale, provided staff record that it was made and the written document follows.

A premium collected and paid on to the insurer can be a disbursement outside the scope of VAT if the conditions in paragraph 13.4 are met, including recovering exactly the net premium and itemising it separately. Our guide to agent or principal for VAT explains the general disbursement rules.

Can an insurance intermediary recover any input tax?

Exempt supplies normally carry no right to recover the VAT on related costs. There are two routes back to recovery. First, where an intermediary’s customer belongs outside the UK, the place of supply is outside the UK and the service is outside the scope of UK VAT (paragraph 12.2). Secondly, the VAT (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121) gives a right to recover where the insured party belongs outside the UK, or the insurance is directly linked to the export of goods from the UK (paragraph 12.3.1).

Insurance related service	Place of supply in the UK	Place of supply outside the UK
Insured party belongs in the UK	Exempt, no recovery	Outside the scope, no recovery
Insured party belongs outside the UK	Exempt with recovery	Outside the scope with recovery
Insurance directly linked to export of goods from the UK	Exempt with recovery	Outside the scope with recovery

Most brokers therefore have a mix of supplies and need a partial exemption method. When valuing supplies for that calculation, use gross commission without deducting commission paid on to other intermediaries, and exclude premiums passed to insurers (paragraph 13.3). The tax point for related services is the earlier of issuing a debit note or invoice and receiving payment (paragraph 13.2).

Illustration only. A broker earns £400,000 of commission on UK insureds, £100,000 on policies for insureds belonging abroad and £20,000 of taxable fees for designing an insurer’s marketing campaign. Overhead VAT of £30,000 cannot be directly attributed. On a simple turnover split, the supplies carrying recovery are £120,000 of £520,000, about 23%, so roughly £6,900 of the £30,000 might be recoverable, subject to the method the business actually uses and the de minimis tests.

What are the common mistakes?

• Assuming every fee a broker charges is exempt. Consultancy, administration for an insurer with no contact with insured parties and investment advice are taxable.
• Loss adjusters invoicing claims work as exempt without written authority to accept, reject and settle, or above their authority limit.
• Retailers and dealers charging an arrangement fee without the written disclosure, which turns the fee taxable.
• Confusing VAT with Insurance Premium Tax. Notice 701/36 paragraph 2.1 stresses they are separate taxes and that IPT cannot be recovered; see our UK insurance tax key figures.

Banking and lending fall under a different group: see financial services and the VAT exemption.

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Related Accountapedia entries

• Insurance premium tax
• Zero rated vs exempt supplies
• Place of supply for property related services
• Place of supply of services: B2B and B2C
• End users in the construction reverse charge

Sources

• legislation.gov.uk: Act 1994 c. 23, schedule 9
• GOV.UK: Insurance notice 70136

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.