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Treasury to consult on VAT after Euro judgment

The Treasury is to launch a consultation into what aspects of insurers’ business will be subject to VAT following the recent Andersen case in Europe.

The European Court of Justice’s ruling that cer- tain back-office functions carried out by accountants Arthur Andersen for insurance firms were not exempt from VAT under EU rules has raised the likelihood that UK life offices will be have to pay VAT on some outsourcing arrangements.

ABI taxation manager Lee Francis says it is still unclear which services may be hit by VAT but outsourced claims’ handling and third-party administrators could suffer.

The consultation will be launched after the election.

Cardiff Pinnacle deputy head of risk Keith Martin says only non-sales services will lose their VAT exemption but the demarcation between what constitutes sales and what is merely servicing could throw up some grey areas.

He says it is also unclear whether those services outsourced outside the EU, such as call centres in India, will be subject to the charge.

Norwich Union, which has call centres in India, says it cannot assess the impact without more details. Spokeswoman Sue Win- ston says: “It is clear that the no VAT on insurers’ rule is going to become narr-ower and the industry wants clarification.”

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