United Biscuits (Pension Trustees) Ltd & Anor v Revenue And Customs

The VAT exemption for insurance transactions does not extend to pension fund management supplied by non-insurers. Management of group pension funds is treated as insurance under the insurance Directives only in the regulatory context applicable to authorised insurers; that treatment does not make the activity an insurance transaction for the purposes of Article 135(1)(a) of the Principal VAT Directive. Fiscal neutrality cannot create an exemption which EU law does not provide. If VAT has nevertheless been paid under a mistake as to the contractual obligation to pay it, the customer may have a restitutionary claim against the supplier. The supplier may in turn seek recovery from HMRC under section 80 of the Value Added Tax Act 1994. The action against HMRC was dismissed.

The claimants were current and former trustees of pension funds. They sought repayment from HMRC of VAT paid to investment managers who were not authorised insurers. HMRC had treated pension fund management supplied by insurers as exempt, but supplies by non-insurers as standard-rated.

The trustees argued that pension fund management was an insurance transaction under Article 135(1)(a) of the Principal VAT Directive, relying on the treatment of management of group pension funds in the First life Directive. They also argued that fiscal neutrality required equivalent treatment of non-insurers. Alternatively, they claimed a direct remedy against HMRC if recovery from suppliers was impossible or excessively difficult.

The court considered whether the services were exempt, whether the trustees had an effective remedy against the suppliers, and whether a reference to the CJEU was required.

1. Issue 1. Pension fund management supplied by non-insurers was not an insurance transaction exempt under Article 135(1)(a) of the Principal VAT Directive. The First life Directive did not establish that the activity was insurance in the ordinary EU-law sense. It treated the activity as insurance only where conducted by an authorised insurer within its regulatory scheme. The activity did not become an insurance transaction merely because it was included in the First life Directive.
2. The CJEU authorities, including Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) and Försäkringsaktiebolaget Skandia (C-240/99), concerned transactions involving the underwriting of risk. They did not decide that management of group pension funds under Article 1(2)(c) of the First life Directive was an insurance transaction for VAT purposes. Fiscal neutrality could not require exemption of supplies which EU law did not exempt.
3. Issue 2. If the court was wrong on exemption, the trustees had a restitutionary claim against the non-insurers for the whole amount paid. The contractual words requiring VAT payment “if applicable” did not require payment of VAT which was not legally due. This conclusion did not give horizontal effect to the VAT Directives; it applied ordinary principles of contractual construction and restitution.
4. The trustees’ recovery from the non-insurers would not be impossible or excessively difficult. The difficulty of determining the underlying EU-law issue concerned the merits, not a shortcoming in the domestic system of remedies. Under Reemtsma (Case C-35/05), Danfoss (Case C-94/10) and Farkas (Case C-564/15), EU law generally permits recovery through the supplier, with a direct claim against the tax authority required only where recovery from the supplier is impossible or excessively difficult.
5. Issues 3 and 4 were unnecessary to decide. The judge nevertheless expressed the obiter view that, if a direct claim against HMRC had been required, section 80(7) of the Value Added Tax Act 1994 would have had to be disapplied to the extent necessary, subject to the four-year period in section 80(4).
6. No reference to the CJEU was required. The trustees’ action was dismissed.