A consultation document has been published which sets out draft legislation to amend article 3 of the Value Added Tax (Input Tax) 
(Specified Supplies) Order 1999 to restrict its use in certain circumstances to prevent avoidance.
HMRC is cracking down on a version of offshore looping which is currently found in the insurance industry and involves looping intermediary supplies via an overseas territory.
This offshore looping structure was discovered in the recent First Tier Tribunal case concerning Hastings Insurance Services which HMRC lost. Since HMRC lost the case other insurers have come forward claiming that if the VAT avoidance scheme is not addressed then they will have no other choice but to adopt similar structures to be able to compete.
Providers of financial services cannot reclaim the VAT they incur on their costs as their service are VAT exempt. An offshore loop is a cross border structure that enables these VAT costs to be reclaimed by routing services carried out in the UK via a body located outside the EU. These services are then used to provide insurance (and other financial services) back into the UK market.
The draft amended legislation aims to prevent looping by restricting the application of the specified supplies order to cases where the final consumer is not in the UK.
More information about the consultation can be found on the .Gov website.
The Bedrock team has considerable expertise when it comes to VAT. Get in touch today if you’d like to discuss how best to manage your VAT affairs to ensure that you stay on the right side of the UK tax legislation.
