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istock_teephone_Chainarong Prasertthai

PPI claims handing was not exempt from VAT

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Do fees for claiming compensation for mis-sold PPI claims equate to insurance income for VAT? The upper tribunal was called upon to decide in Claims Advisory Group Ltd v HMRC

5th Sep 2021
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The Claims Advisory Group Limited (CAG) made compensation claims on behalf of individuals who had been mis-sold payment protection insurance (PPI).

No doubt you will have heard or seen adverts from similar companies, offering to get repayments of PPI in exchange for a cut of the payment, despite the process being relatively straightforward and not requiring a go-between.

CAG cold-called customers who it believed had been mis-sold PPI. This mis-selling generally arose because the lenders received generous commissions for each PPI plan sold. 

If CAG managed to convince someone with one of their calls, they would send out a bundle of paperwork explaining what happens next and setting out their fee.

The fees in question were an eye-watering 39% of the total repayment. Given the average claim of £1,700 (per the Financial Conduct Authority) and the fact the process could be completed by the customer via a letter to the bank or using free online claim tools, it is understandable why some people felt the PPI claim companies were often as bad as the PPI (mis)sellers themselves.

FTT findings

CAG had previously treated the fees it received as exempt from VAT, believing them to be insurance products within Item 1, Group 2, Schedule 9 of VATA 1994. HMRC disagreed and the case was taken to the first tier tribunal (FTT).

The FTT found in HMRC’s favour based on two issues.

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