Ford Motor Company Ltd v Revenue & Customs

For VAT purposes, a transaction marketed as including free insurance does not necessarily contain a separate insurance supply. The court must examine the transaction as a whole from the perspective of a typical customer. A service is ancillary where it is not an aim in itself but a means of better enjoying the principal supply. An economically single service must not be artificially split. A separate supply also requires consideration, involving an express or implied agreement that part of the price is value given in return for that service. Where insurance is presented as free and the full price is invoiced for the car, no consideration is attributable to insurance. The insurance exemption need not be decided.

Ford promoted car sales by offering free motor insurance and RAC breakdown cover. Ford paid the relevant underwriters, while customers paid the dealer or Ford Credit a single invoiced amount for the car. Ford sought repayment of output VAT, claiming that the transaction comprised a standard-rated supply of the car and an exempt supply of insurance.

HMRC rejected the claim. The VAT Tribunal and Sir Donald Rattee, sitting in the High Court Chancery Division, also rejected it. The Tribunal distinguished sales before and after 23 January 2004, whereas the High Court held that no part of the price was consideration for insurance. The Court of Appeal considered whether there was one supply or two, whether any insurance supply was exempt, and whether it was ancillary to the car supply.

1. Appeal dismissed. The Court of Appeal unanimously held that the transaction did not involve a separate supply of insurance services for consideration.
2. The proper approach is to address the overall issue of whether there was a supply of insurance services for consideration. Supply and consideration are interrelated aspects of that issue. The exemption under article 13B(a) of the Sixth Directive (77/388/EEC) arises only if that threshold issue is answered affirmatively.
3. Applying the composite-supply principles in Card Protection Plan v HM Commissioners for Customs & Excise [1999] STC 270, the court considered the transaction from the perspective of a typical customer. Insurance was not ordinarily an aim in itself, but a means of enjoying the car. It was therefore ancillary to, and subsumed in, the principal supply of the car. The court found no relevant distinction between the periods before and after 23 January 2004. The reasoning was consistent with Peugeot Motor Co plc v HM Commissioners for Customs & Excise [2003] STC 1438.
4. The alternative consideration analysis led to the same result. Under Kuwait Petroleum GB v HM Commissioners for Customs & Excise [1999] STC 488, consideration requires a legal relationship involving reciprocal performance and an agreement that part of the price represents value given in return. Ford marketed the insurance as free, charged the same invoice price whether the option was taken up, and invoiced the full amount as the price of the car. Those circumstances were inconsistent with any express or implied agreement that part of the price was paid for insurance.
5. Rix LJ added obiter observations on the exemption issue. If there had been an independent insurance supply for consideration, third-party underwriting would not necessarily have prevented it being an insurance transaction within article 13B(a). The reasoning in Card Protection Plan and the national decisions in Peugeot, Lindsay Cars and Global Self Drive supported that view. Arthur Andersen and Taksatorringen were distinguishable because they concerned services supplied to insurers for management or assessment purposes rather than the bringing together of insurer and insured.

• Court of Appeal (Civil Division). Dismissed Ford’s appeal unanimously.
• High Court (Chancery Division). Sir Donald Rattee dismissed Ford’s appeal from the VAT Tribunal and held that no part of the price was consideration for insurance.
• VAT Tribunal. Rejected Ford’s appeal. It treated post-23 January 2004 insurance as a separate consideration but held that the insurance supply was subsumed into the car supply.