Card Protection Plan Limited v. Commissioners of Customs and Excise

For VAT purposes, the essential features of a transaction must be assessed from the perspective of a typical consumer. A service that is economically a single supply must not be artificially divided. An element is ancillary where it is not an aim in itself, but a means of better enjoying the principal service.

Insurance cover procured through a block policy may constitute an insurance transaction even though the supplier is not itself the insurer. Where financial protection is the dominant purpose of a scheme, registration, notification and administrative services that facilitate that protection share the exemption applicable to the principal insurance supply.

A company supplied customers with a card protection plan comprising financial protection against losses and several registration, notification and assistance services. The Commissioners assessed the whole supply to VAT. The VAT Tribunal treated it as a taxable card registration service. Popplewell J, reported at [1992] STC 797, found separate insurance and convenience supplies. The Court of Appeal, reported at [1994] STC 199, instead held that there was one taxable card registration service to which the insurance was incidental.

Following a preliminary reference to the European Court of Justice, the House had to determine whether the plan comprised two independent supplies or one composite supply, and, if the latter, whether insurance or card registration was the principal element.

1. The appeal was allowed unanimously. Lord Slynn of Hadley delivered the leading speech. Lord Jauncey of Tullichettle, Lord Nolan, Lord Steyn and Lord Hoffmann agreed with his reasons and proposed order.

2. Per Lord Slynn, insurance transactions include the procurement, in the supplier's own name and on its own account, of cover for customers under a block policy issued by an insurer that assumes the risk. The fact that the supplier is not itself an authorised insurer does not prevent the transaction from falling within article 13(B)(a) of the Sixth Directive. Assistance in cash or in kind may also constitute insurance.

3. The court must examine all the circumstances and ascertain the transaction's essential features from the perspective of a typical consumer. Every service is normally distinct and independent, but a service that is economically single must not be artificially divided. An element is ancillary where it is not an aim in itself, but a means of better enjoying the principal service. A single price may indicate one supply, but is not conclusive.

4. Per Lord Slynn, the scheme's essential feature and dominant purpose was insurance against financial loss arising from the misuse or loss of cards and other documents. The express indemnity against fraudulent use was insurance in its clearest form. Several emergency and recovery services also constituted assistance within the relevant insurance directives.

5. The registration, loss-notification, replacement-card, luggage-tag and medical-card services facilitated the financial protection. They were ancillary or incidental to it and, in some instances, were preconditions to obtaining cover or making a claim. They did not form a sufficiently coherent and economically dissociable taxable supply. Treating insurance as subsidiary to card registration would mischaracterise the transaction.

6. The plan therefore comprised one principal exempt insurance supply. Its ancillary elements shared the same VAT treatment. The company was awarded its costs in the House and below.

1. House of Lords: By [2001] UKHL 4, unanimously allowed the appeal and held that the plan was a principal exempt insurance supply with ancillary services.

2. European Court of Justice: On the House's preliminary reference, Case C-349/96, reported at [1999] 2 AC 601, ruled on insurance transactions and the criteria for identifying single and multiple supplies, leaving their application to the national court.

3. Court of Appeal: By [1994] STC 199, dismissed the company's appeal and allowed the Commissioners' cross-appeal, holding that there was one taxable card registration service and that the insurance was incidental.

4. High Court: Popplewell J, in [1992] STC 797, held that the plan involved arrangements for insurance but comprised separate insurance and convenience supplies.

5. London VAT Tribunal: Upheld the assessment on the basis that the transaction was a single taxable card registration service.