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VAT on payments generated by business gained by an associated company following a referral

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Published: 04 Nov 2024

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Q: My UK VAT registered business sells commercial vans to businesses in England. When customers buy a vehicle, we offer them the opportunity to obtain insurance at the same time. We have an agreement with a local well-known insurance company to recommend them and have a stock of their application forms. We give these to customers and forward them to the insurance company when complete. We get paid by the insurance firm for every customer policy taken up. What is the VAT liability of this fee from the insurer?

A: A supply of insurance referral services is exempt from VAT provided the supplier is acting in an intermediary capacity and is providing an insurance related service, which includes introductory services, but does not include merely advertising an insurance product.

In your case, as you are recommending the insurance company’s product, are returning the application forms and are paid per policy taken up, this would be sufficient to exempt the fees you earn from the insurer. Chapters 8 and 9 of Notice 701/36 goes in to more detail on this (Group 2, Schedule 9 of the VAT Act 1994).

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