HMRC Policy paper – VAT deduction on insurance intermediary services supplied outside the UK

Purpose

The brief explains changes to the right to deduct input VAT on insurance intermediary services supplied outside the UK before 31 December 2023, following the First-tier Tribunal decision in Hastings Insurance Services Ltd (2025).

Background

Insurance-related services are generally VAT exempt, meaning businesses cannot deduct VAT incurred on these supplies.
The Specified Supplies Order (SSO) 1999 allows deduction of input VAT for certain financial and insurance services supplied to persons outside the UK.
In Budget 2018, the government restricted this right for insurance intermediaries to cases where the final consumer (insured party) is outside the UK. This was implemented via Article 3A of the SSO (effective 1 March 2019).

Tribunal Decision

The Tribunal ruled Article 3A incompatible with Article 169(c) of the EU VAT Directive, allowing Hastings to rely on direct effect of EU law to recover input VAT.
HMRC accepted the decision and did not appeal.
Businesses could rely on EU law for claims up to 31 December 2023, even if the insured party was in the UK.

Post-Brexit Changes

From 1 January 2024, section 4 of the EU Withdrawal Act 2018 was repealed by the Retained EU Law (Revocation and Reform) Act 2023.
Direct effect of EU law no longer applies; UK law is now supreme.
Article 3A remains in force, meaning input VAT deduction is only allowed if the insured party is outside the UK.

Action for Businesses

Insurance intermediaries can review input VAT recovery for accounting periods ending on or before 31 December 2023.
Claims must follow HMRC’s error correction process and be submitted within the 4-year time limit, including:
- Documentary evidence
- Revised partial exemption calculations (if applicable)

Further Guidance

Relevant HMRC notices:

Source gov.uk

Other sources

From 1 January 2024, UK insurance intermediaries can no longer rely on Article 169(c) of the VAT Directive for input tax deductions on specified supplies made to clients outside the UK, due to the repeal of provisions allowing the direct effect of EU law in UK legislation.
The HMRC has accepted the First-tier Tribunal’s finding that the previous restriction on input tax deduction (Article 3A of the Specified Supplies Order) is incompatible with EU law, but this ruling will no longer apply post-2024, limiting deductions to cases where the final consumer is outside the UK.
Insurance intermediaries are advised to review their input tax recovery claims for specified supplies made before 31 December 2023, and if they believe they have under-recovered input tax, they should submit error correction notices and provide supporting documentation within the four-year time limit.

Source KPMG

Exemption