WHA Ltd & Anor v Customs & Excise

For VAT purposes, the actual contractual structure of transactions is the starting point, although the legal character of the resulting supplies is a matter of VAT law. A repair service may be supplied to the person who authorises and pays for it in the course of its business, even though a third party also benefits from it.

Whether linked activities form one supply depends on their essential economic, contractual and commercial features. A claims handler’s payment of the cost of satisfying an insurance claim can be a separate taxable supply from exempt claims-handling services. A foreign trader may nevertheless obtain a VAT repayment where domestic legislation requires it to be treated as a United Kingdom taxable person and its supplies fall within specified supplies.

WHA operated claims handling for motor breakdown insurance policies. It authorised garages to repair insured vehicles and paid their invoices. WHA then invoiced Viscount, a Gibraltar-based reinsurer, for the repair cost and a claims-handling fee.

The VAT and Duties Tribunal held that the garage did not make a taxable supply to WHA, that WHA’s payment of repair costs was not exempt, and that Viscount could not recover VAT charged by WHA. Lloyd J allowed the companies’ appeal on the first two issues: [2003] STC 648.

The Commissioners appealed. The central questions were whether the garages supplied services to WHA, whether WHA’s payment of repair costs was an exempt insurance-intermediary service, and, if it was taxable, whether Viscount could obtain a repayment of the VAT.

1. Appeal allowed in part. Neuberger LJ, with whom Latham and Waller LJJ agreed, held that the Commissioners succeeded against WHA. WHA had to charge output tax on its supply to Viscount. Viscount was, however, entitled under domestic legislation to recover that VAT, subject to the Commissioners’ further arguments.
2. A garage supplied repair services to WHA. WHA authorised the work, was contractually liable and paid for it, received the invoice, and obtained a genuine business benefit by performing its claims-handling obligations and earning its fee. The vehicle owner’s concurrent benefit did not prevent a supply to WHA. This applied the approach in Redrow, [1999] 1 WLR 408.
3. The services supplied by WHA to Viscount comprised two supplies. Claims handling was distinct from footing the garage bill. The services differed in character, function and consideration. Neither was ancillary to the other. The latter was the substantive satisfaction of the insurer’s obligation, rather than assistance in administering or handling a claim.
4. Accordingly, payment of the repair cost did not fall within the insurance-intermediary exemption in Item 4 of Group 2 of Part II of Schedule 9 to the Value Added Tax Act 1994. Nor was it an exempt dealing with money under Group 5. The relevant VAT exemptions required a strict but fair construction.
5. Viscount could not rely on Article 17 of the Sixth Directive. Its reinsurance supply to Crystal, both entities being outside the Community, was not an Article 13B(a) exempt transaction. But Regulation 186 of the Value Added Tax Regulations 1995 required the counterfactual assumption that Viscount was a United Kingdom taxable person. On that basis, section 26(2)(c) and Article 3(a) of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 permitted repayment.

1. Court of Appeal (Civil Division). Allowed the Commissioners’ appeal against WHA on the VAT exemption issue, but held that Viscount was entitled to recover the VAT under domestic legislation.
2. High Court, Chancery Division (Lloyd J). Allowed WHA and Viscount’s appeal from the Tribunal. He held that garages supplied services to WHA and that WHA made exempt supplies to Viscount: [2003] STC 648.
3. VAT and Duties Tribunal. Accepted the Commissioners’ position on all three substantive VAT issues.