Nature of insurance supply

The taxpayer offered storage facilities in the UK. Domestic customers had to take insurance for stored goods under a policy provided by its sister company based in Guernsey. Under the agreement between the two companies the taxpayer collected premiums from its customers and passed 70% off to the Guernsey company.

The taxpayer said the arrangement resulted in it making exempt supplies of insurance intermediary services to its sister company. So it was entitled to recover input tax on the associated costs (VATA 1994 s 26(2)(c) and VAT (Input Tax) (Specified Supplies) Order SI 1991/3121). HMRC said the taxpayer was making an exempt supply of insurance to its UK customers so the related input tax was not recoverable.

The First-tier Tribunal basing much of its decision on Card Protection Plan v CCE (Case C-349/96) [1999] STC 270 found in favour of HMRC so the taxpayer appealed to...