Brown to delay VAT hit on insurers

The chancellor is preparing to delay plans to introduce a £200m VAT bill on
outsourced services on insurers – a move that could be announced in the
pre-Budget report in the coming weeks.

Insurers expect Gordon Brown to postpone proposals to impose VAT on
outsourced services from 1 January 1 2006 for at least six months.

In October this year Accountancy Age reported that the Association
of British Insurers was doing ‘everything within its power’ to urge the
Treasury, HM Revenue & Customs and other parties to ‘mitigate the impact’ of
the new rules by delaying their implementation and ‘using their discretion not
to penalise the customers of insurers’.
A spokeswoman for the ABI said that a delay would be ‘good news for insurance

A Treasury spokesman told The Times that the implementation date
would be influenced by the responses to the consultation on the tax.

On 3 March this year, the European Court of Justice made a landmark ruling on
the tax status of outsourced insurance-related services. It ruled that Andersen
Consulting, now Accenture, should charge VAT on outsourced back-office services
supplied to the insurer Universal Life.

The services provided by Accenture included a range of insurance-related
services such as the acceptance and checking of applications for insurance,
claims management and drafting reports to policy-holders and third parties.

In October Peter Vipond, director of financial regulation and taxation at the
ABI, said that if these rules were introduced, it would add an additional tax
burden of £200m on top of what insurance companies already pay.

‘The industry already pays over £1bn in VAT and around £2.6bn in insurance
premium tax, with an extra £1bn in irrecoverable VAT.

‘We need clarity prior to implementation on the exact areas of business
affected, so that insurance companies and outsourcers can put in place the
necessary changes to their systems.’

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