Offshore looping schemes

The Treasury has published a draft order to counter avoidance schemes involving the recovery of VAT on exempt financial services by routeing them through offshore entities outside the EU.

In a ministerial announcement financial secretary to the Treasury Mel Stride said the measure addressed a version of offshore looping found almost exclusively in the insurance sector. The scheme is already the subject of litigation with HMRC planning to appeal the First-tier Tribunal’s decision in Hasting Insurance Services Ltd (TC6306). But the government has decided to legislate to put the issue beyond doubt and prevent further use of the scheme.

The government will reduce the scope of the VAT relief for exporters of financial services by excluding financial intermediation in supplies made ultimately to UK customers.

Providers of financial services generally cannot reclaim the VAT they incur on their costs because their services are exempt. An offshore loop is a cross-border...