Britain's insurance industry has broadly welcomed a new European Union (EU) directive aimed at clarifying the rules on VAT exemption.

Most financial and insurance services are exempt from VAT, but this ruling is not applied in same way by different member governments.

The EU is seeking to bring in clearer guidelines to avoid further court cases to settle disputes.

Sarah Knight, assistant director of financial regulation and taxation at the Association of British Insurers (ABI), said insurers throughout the EU would benefit.

"The changes will increase clarity, allowing firms to operate and plan more efficiently," she said.

"This is especially true of firms with cross border operations who will be able to pool operations and share costs between group members without creating additional non-recoverable VAT."

Laszlo Kovacs, the EU taxation and customs commissioner, said he was confident that the package of measures was the best way to reform VAT exemption.

He added that he hoped the measures would gain broad support from member states, as it should reduce the risk of legal action.

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