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Networks will keep their VAT exemption

Your recent headlines concerning the possibility of VAT being imposed upon network services do not deal with the origins of the VAT exemption and why this exemption is unlikely to be successfully challenged by HM Customs and Excise.

The legislation concerning VAT and the provision of insurance services is complex but, by way of brief summary, the relevant UK legislation is the VAT Act of 1994 which was based upon the European Union sixth directive.

The sixth directive provided specifically for member states to exempt the arranging of insurance transactions including related services by insurance brokers and insurance agents. The VAT Act of 1994 implemented this requirement in clear terms.

The sixth directive and the associated UK legislation extended the exemption from VAT of insurance services beyond that expected by the UK authorities.

Accordingly,it was not surprising that the extent of the exemption was challenged by HM Customs and Excise and ruled on in the High Court in a number of important cases.

The most significant case concerning Century Life confirmed the exemption and thwarted the efforts of HM Customs and Excise to limit its extent.

The legislation and case law is much more complex than my summary above. However,I am more than satisfied that the recent high level publicity you have given to the issue is neither justified nor accurate.

I have been in contact with the relevant authorities and am satisfied that our investment networks will continue to benefit from the legislative exemption and that any challenge will prove to be ill-founded. Quite contrary to the article of May 20, it is more likely that support services operations such as Bankhall will be challenged rather than the well established network which arranges insurance for its members and accepts the liability for the advice given.

Investment networks provide a highly valuable service to members and the consumer – this is a service which is increasingly recognised as providing significant investor protection.

Accordingly, I do not expect the network structure to be threatened by a possible limitation of the VAT exemption as the consequences would only be higher costs to the consumer – a result which I am sure would not be welcomed at a time when every attempt is being made to reduce the costs of advice.

Geoffrey Clarkson

Director,

Tenet Group,

Leeds

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