UK Government perplexed over possibilities of tens of thousands of insurance service jobs moving to India over UK’s tax increase
Babu Ghanta
Oct. 3, 2005

As the Western world tries to impose more corporate taxes, the corporations are threatening to move tens of thousands of jobs offshore especially to India.

One of Britain's biggest services providers threatened on Friday to move jobs to India if the UK government pushed ahead with a plan to impose tax on insurance services from next year.

Liberata Financial Services, which provides intermediary insurance services to over 3 million policy holders, said implementing the VAT change would result in the loss of 10,000 outsourcing jobs in the UK, based on a recent study.

In a move to lobby the government, the company said it had planned to triple the size of its business over the next two to three years, but a tax change would force it to move jobs offshore to cut costs.

Liberata employs more than 1,000 people for clients including Barclays, AXA and Resolution. HM Revenue & Customs (HMRC), the UK tax authority, plans to implement new rules on applying value-added tax (VAT) to insurance services from the start of 2006, but a consultation period ending today drew sharp criticism of its plans.

Insurers and outsourcing firms said HMRC should delay implementing the measure for at least a year or hold off introducing it until the European ruling is clearer.

The UK is implementing the VAT after the European Court of Justice ruled in March that some back-office activities outsourced by insurers were not exempt from VAT.

Liberata said the UK is the only member state planning to implement the change so quickly and other EU states are awaiting the outcome of a European Commission review on some of its tax issues expected later this year.

HMRC said it will analyse responses to the feedback in terms of both the timing and implementation of the changes, but the plans were "not set in stone".

Earlier this week the Association of British Insurers said the new tax rule would increase insurers'' tax burden by more than 200 million pounds ($353 million) and Britain's biggest insurer Aviva said the suggested implementation date was "unrealistic".

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