Only one supply

Between April 1994 and July 2005 Ford Motor Company offered through its dealers free insurance to buyers of certain cars. The company accounted for output VAT in respect of the relevant cars on the invoiced price without any deduction for the insurance.

The company claimed that part of the price paid by the buyer was for the insurance. Thus it was effectively making two supplies i.e. the standard-rated supply of the car and the exempt supply of insurance. HMRC rejected the claim and the VAT tribunal and High Court supported HMRC.

The Court of Appeal said that where a transaction involved two supplies one of services and one of goods there was still a single supply if either element was ancillary to the other. In this instance the free insurance was not an aim in itself for the typical customer but a...