Insurance services
The taxpayer supplied double glazing, and gave a ten-year guarantee supported by an insurance policy to protect the customer against the risk of its insolvency. Customers were billed the price of the double glazing and additional charges for the insurance premium and services provided in arranging and administering the policy.
Insurance services
The taxpayer supplied double glazing, and gave a ten-year guarantee supported by an insurance policy to protect the customer against the risk of its insolvency. Customers were billed the price of the double glazing and additional charges for the insurance premium and services provided in arranging and administering the policy.
The company's standard form of contract showed a 'total contract price' and, where that was over £1,000, it stated that the price included a £16 insurance premium backing up the installation. It also said that the price included an arrangement fee relating to the insurance of ten per cent of the total contract price.
A question arose as to whether the contractual document contained the statements required by Note 5 of Item 4 of Group 2 of Schedule 9 to the VAT Act 1994. Customs argued that it did not, and that the reference to ten per cent was inadequate. The tribunal and then the Court of Session agreed with Customs, so the taxpayer company appealed to the House of Lords.
The House of Lords said that in order to comply with the law, a document supplied to the customer had to tell him what he had to pay for insurance-related services, but there was no requirement that it had to be communicated in a particular form. Note 4(c) gave Customs a specific power to prescribe the form of the document by notice, yet they had made no formal requirements whatever. There was no objection to the information being tucked away anywhere in the small print at the back of the form.
The only way that the United Kingdom could justify rules which deprived insurance-related services from VAT was by showing that they were to prevent evasion, avoidance or abuse. A provision insisting that the documents not only disclosed the apportionment of consideration, but must do so in a particular way, would not necessarily prevent avoidance. Customs' construction did not conform to the terms of the Sixth Directive.
The appeal was allowed.
(C R Smith Glaziers (Dunfermline) Ltd v Commissioners of Customs and Excise, House of Lords, 20 February 2003.)