Intelligent Money Limited v The Commissioners for HMRC

An insurance transaction under the VAT exemption requires more than an uncertain event triggering a payment or service. The insured must obtain protection from the relevant risk or uncertainty: under the arrangements as a whole, someone other than the insured must bear the cost of its materialisation.

A premium must be paid in advance as consideration for that protection. Payments that are identifiable consideration for ongoing administration, and contributions beneficially owned by scheme members and held for their benefit, are not premiums. The release of a member’s own pension fund is an administrative service, not insurance cover.

Intelligent Money Limited administered a self-invested personal pension scheme. Members paid annual and other fees for its establishment, operation and administration. Their contributions were held on trust and invested for their benefit, dependants and other beneficiaries.

The First-tier Tribunal dismissed the company’s claim for repayment of VAT, holding that its services were not exempt insurance transactions under item 1 of Group 2, Schedule 9 to the Value Added Tax Act 1994. The company appealed under [2022] UKFTT 0338 (TC).

The central issue was whether the scheme’s fees were consideration for an insurance transaction within article 135(1)(a) of Council Directive 2006/112/EC and the corresponding domestic exemption.

1. Appeal dismissed. The supplies connected with establishing, operating and administering the SIPP were not exempt insurance transactions. Any errors in the First-tier Tribunal’s reasoning were immaterial because its conclusion was correct.

2. The CJEU formulation requires an insurer, for prior payment of a premium, to undertake to provide the insured with the agreed service when the covered risk materialises. It necessarily entails a contractual relationship under which the insured receives protection from the relevant risk or uncertainty.

3. The Tribunal accepted that a risk might, for present purposes, include an uncertain contingent event. It was nevertheless necessary that someone other than the insured bear the cost of the payment or service on materialisation. The contractual provider need not ultimately bear that cost, because it may obtain cover from another person. A scheme fails the requirement where the member’s own fund bears the cost of the alleged life and death benefits.

4. The annual and other fees were consideration for identifiable administrative services, not risk premiums. Member contributions were held on the terms of the trust for members and beneficiaries. They were not consideration for a supply by the administrator merely because investments could be sold to discharge fees.

5. Payment of life and death benefits involved only the administrative release of the member’s own funds. It was not a contractual provision of insurance cover. The Tribunal distinguished Fuji Finance Inc v Aetna Life Insurance Co Ltd, because in that case premiums belonged to the insurer and benefits were paid from its resources. It held that Winterthur Life UK Ltd v Customs and Excise Commissioners was wrongly decided and would now be decided differently.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal and upheld the result reached by the First-tier Tribunal.
• First-tier Tribunal (Tax Chamber): dismissed the claim for repayment of overpaid VAT: [2022] UKFTT 0338 (TC).