WHA Ltd & Anor v Customs and Excise

For VAT purposes, contractual arrangements do not conclusively determine the nature or recipient of a supply. The court must examine the whole transaction and its commercial reality. A service may be supplied to more than one person, and a taxable person may use a service for its business in a broad, passive sense where securing the service enables it to perform its contractual obligations. Where an insurance agent procures repairs and arranges payment of repairers in handling insurance claims, those functions may constitute one single service of claims handling. The service may fall within the exemption for related services performed by insurance agents, including assistance in the administration and performance of insurance contracts. The exclusion for services supplied for satisfying an insurance claim was confined to services provided to the insured in kind.

WHA Limited handled motor breakdown insurance claims for Viscount Insurance under arrangements involving NIG, Crystal Reinsurance Company Limited and Viscount Reinsurance Company Ltd. The VAT and Duties Tribunal decided three issues against the appellants, including whether garages supplied repair services to WHA, whether WHA’s services to Viscount were exempt, and whether Viscount could recover input tax if WHA had to charge VAT.

WHA appealed. The High Court considered the contractual arrangements, the practical operation of the claims scheme, the statutory meaning of input tax and supplies of services, and the insurance-services exemption. The third issue was conditional on WHA’s services being taxable and therefore did not arise for decision.

1. First issue—garage supplies. The contractual documents were the starting point but were not conclusive. The court had to determine the nature of the supplies from the whole facts. Although the garages supplied repairs and parts directly to the insured, they also supplied services to WHA. By authorising and securing the repairs, the garages enabled WHA to discharge its obligation to Viscount to deal with proper claims. Those services were used for the purposes of WHA’s business within Value Added Tax Act 1994, section 24(1). The Tribunal’s contrary conclusion was wrong.

2. The statutory concept of services used for business purposes was to be approached broadly. WHA obtained a business benefit from its arrangements with garages even though the insured received the direct physical benefit of the repairs. The garage services were supplied to WHA for consideration and constituted input tax within section 24(1).

3. Second issue—exemption. WHA supplied Viscount with one composite service. It comprised procuring the necessary repairs, handling the claim and arranging payment of the garage’s invoice. Separating payment from authorisation and other claims functions was artificial. The service fell within article 13B of the Sixth Council Directive and Group 2, item 4, Note (1)(c) to Schedule 9 of the Value Added Tax Act 1994, as assistance in the administration and performance of insurance contracts, including claims handling.

4. Note (10) did not exclude WHA’s service from exemption. Properly construed, it concerned services supplied to the insured which satisfied the insurance claim in kind, rather than claims-handling services supplied by an insurance agent to the insurer or reinsurer. WHA’s service was therefore exempt. Subject to the Respondent’s Notice, WHA was entitled to recover the input tax charged by the garages under section 26(2)(c) and the Value Added Tax (Input Tax) (Specified Supplies) Order 1999.

5. Third issue. The question whether Viscount could recover input tax if WHA had to charge VAT was hypothetical once the second issue had been decided. The court expressed no view on it and made no reference to the European Court of Justice.

6. Subject to submissions on the Respondent’s Notice, the appeal would be allowed.

• VAT and Duties Tribunal: decided the three issues adversely to the appellants, subject to one unchallenged aspect.
• High Court (Chancery Division): allowed the appeal on the first two issues, subject to consideration of the Respondent’s Notice; the third issue was left undecided.