Peugeot Motor Company Plc & Anor v Customs & Excise

Where a motor manufacturer offers insurance with a vehicle sale, the insurance-related promise may constitute a separate supply for VAT purposes. Nevertheless, if it is made for consideration and forms part of a single transaction, it is ancillary to the principal supply of the vehicle and takes the vehicle’s standard-rated treatment. Whether the insurance promise was supplied for consideration is an objective factual question for the tribunal. The taxable amount is not reduced merely because the manufacturer pays an insurer under a separate arrangement, or because the insurance is described as free. The Elida Gibbs principle does not apply where the final consumer pays VAT on the full invoiced price and there is no later transaction reducing the original supplier’s turnover.

Peugeot Motor Company plc and Citroen UK Ltd appealed against a decision of the VAT and Duties Tribunal concerning claims under section 80 of the VAT Act 1994. The taxpayers supplied cars under promotional schemes which offered eligible end-users free motor insurance, provided by third-party insurers and paid for by the taxpayers. Sales could be direct or could involve independent dealers, wholesale companies or finance houses.

The Tribunal accepted the taxpayers’ case in principle for direct sales, applying Primback as then decided by the Court of Appeal, but rejected the claims for indirect sales. Following subsequent developments in European and domestic VAT law, the High Court considered whether the insurance arrangements were exempt supplies, whether they were ancillary to the car supply, and whether the taxable amount could be reduced under Elida Gibbs. The Commissioners cross-appealed on the direct-sales issue.

1. Outcome. The taxpayers’ appeal failed and the Commissioners’ cross-appeal succeeded.
2. The Tribunal had erred in treating the only relevant insurance supply as the provision of insurance cover by the insurer to the end-user. On the Tribunal’s findings, Peugeot and Citroen supplied dealers with a promise to secure motor insurance for eligible end-users. If made for consideration, that service was exempt. It was unnecessary to decide whether the service was itself an insurance transaction or merely the making of arrangements for insurance; the latter characterisation was preferred.
3. Whether any part of the price paid by an end-user, dealer or finance house was referable to the insurance-related supply was a factual issue. The description of insurance as free, the unchanged vehicle price and the form of the invoice were relevant but not conclusive. The question was what the parties objectively understood they were agreeing to. The issue had to be determined by the Tribunal, and the High Court had insufficient material to decide it.
4. The insurance promise was ancillary to the principal supply of a new car. The transaction was a single supply because the insurance promise was part of the overall sale and had no real independent existence. It was not an aim in itself, but a means of better enjoying the principal supply. Any consideration attributable to it therefore took the standard-rated treatment of the car supply.
5. The principle in Elida Gibbs did not assist. The case concerned a later transaction reducing the price received by the original supplier and preventing VAT exceeding that paid by the final consumer. Here the end-users paid VAT on the full invoiced price. The decision in Primback reaffirmed established principles concerning payment arrangements, ancillary supplies and indivisible transactions, but compelled no particular result on these facts.
6. The proposed exempt-financial-services ground added nothing to the insurance-supply argument and permission to rely on it was refused.

• High Court (Chancery Division): The appeal from the VAT and Duties Tribunal failed. The Commissioners’ cross-appeal against the Tribunal’s treatment of direct sales succeeded.
• VAT and Duties Tribunal: The Tribunal’s decision of 27 May 1999 allowed the taxpayers’ claims in principle for direct sales but rejected them for indirect sales. A later Tribunal decision concerning recovery of repayment also treated the earlier decision as a decision in principle only.