UK VAT exemption to cost sharing companies in insurance groups
The UK tax authorities have updated their rules to comply with the EU VAT Directive on VAT and exemptions for groups of companies sharing cost saving outsourced services.
The extension of the exemption is targeted at insurance groups. Insurance, as a financial service, is VAT exempt. This means that insurers were artificially holding certain back offer administration tasks in-house for fear of being charged non-deductible VAT if outsourced.
New UK VAT exemption for insurers on outsourcing
UK insurance groups will now be able to set-up special outsourcing entities within their groups, to provide services across the group companies without having to charge UK VAT.
To qualify for the exemption, the following hurdles must be passed:
- the use of the exemption should have no material impact on competition within the market place
- all members of the group must have greater than 5% VAT exempt activities
- a new special purpose entity must be incorporated
- the services provided must be wholly necessary for the other members of the group