VAT legislation to counter insurance ‘looping’ arrangements

The Value Added Tax (Input Tax) (Specified Supplies) (Amendment) Order, SI 2018/1328, will come into force on 1 March 2019 to block avoidance arrangements used by insurers to reclaim VAT on services routed through offshore entities, which are then ‘looped’ back as supplies made to consumers in the UK.

The order excludes intermediary services from the otherwise exempt supplies in respect of which insurers can recover input tax when those supplies are made outside the EU. This is to ensure that VAT recovery is available only where the final consumers of the supplies are outside the UK.

HMRC published a draft version of the order in July, which has been refined in the final version to target it more tightly on known avoidance in the insurance and reinsurance sectors.