HMRC R&C Brief on offshore insurance loop

In Hastings Insurance Services Ltd v HMRC [2025] UKFTT 275, the FTT held that restrictions introduced in 2018 on the ability of insurance intermediaries to recover input VAT connected with supplies to an insurer located outside the EU were contrary to provisions of the Principal VAT Directive (the insurance offshore loop). The FTT held that the UK was not entitled to restrict the scope of input VAT recovery to situations where the ultimate person insured belongs outside the UK. It was clear that the relevant provisions of the Principal VAT Directive had direct effect and the taxpayer was entitled to rely on that direct effect. See our earlier Insights article here.

Following that decision, HMRC have now published Revenue & Customs Brief 6 (2025) confirming that they accept that the restrictions introduced in Article 3A of the VAT (Input Tax) (Specified Supplies) Order 1999 (the Specified Services Order) were contrary to EU law and ineffective in relation to insurance intermediary services supplied outside the UK before 31 December 2023. As such, this “means that insurance intermediaries supplying services outside the UK can rely on direct effect of EU law to recover relevant input tax incurred prior to 1 January 2024, whether the insured party is in the UK or not”.

However, the R&C Brief points out that from 1 January 2024, the Retained EU Law (Revocation and Reform) Act 2023 means that it is no longer possible to rely on directly effective rights, nor to disapply domestic legislation that is inconsistent with such rights or any other aspect of EU law. Further, Finance Act 2024 s.28 means that UK VAT and excise legislation will continue to be interpreted in the same way as it was before 1 January 2024, with the exception that businesses will no longer be able to rely on the ‘direct effect’ of EU law.

As such, the R&C Brief states that it is no longer possible for any part of UK legislation to be quashed or disapplied on the basis that it is incompatible with EU law. Therefore, the Principal VAT Directive can no longer be relied upon to disapply Article 3A of the Specified Services Order, which is therefore effective to restrict the right to deduct input tax for insurance intermediary services to circumstances where the final consumer (the insured party) belongs outside the UK from 1 January 2024.

Insurance intermediaries that supplied services outside the UK on or before 31 December 2023, now have the opportunity to review and recover over-restricted input tax.