New Judgment: WHA Ltd & Anor v Her Majesty’s Revenue and Customs  UKSC 24
01 Wednesday May 2013
The supply of insurance is exempt from VAT, and insurers neither charge VAT on premiums nor account to HMRC for VAT in respect of their insurance business. They bear the VAT element of costs incurred in the course of their business – when a motor breakdown insurer indemnifies an insured against the cost of repairs, the insurer may not deduct the VAT element of the repairing garage’s invoice. This puts them at a disadvantage relative to companies whose business is not exempt from VAT as they can offer car repairs and deduct the VAT of the costs incurred as input tax.
A scheme designed to minimise the liability to VAT of a group of companies interpreted legislation as enabling UK insurance claims handlers to recover input tax incurred for the purpose of supplying services to a non-EU recipient. The appellants, a UK based company, supplied claims-handling services to a member of the scheme based in Gibraltar. The intention was that the appellants would be regarded as the recipient of a supply of repair services from the garages on which VAT would be charged; would not have to charge output tax on its onwards supply of claims-handling services to the company in Gibraltar, and as a result would be entitled to recover input tax.
HMRC argued that the garages did not make a taxable supply of services to the appellants, and even if this were not the case the scheme was so artificial it fell foul of the EU doctrine on the abuse of rights.
The Supreme Court unanimously dismissed the appeal. It was held that there was no supply of repair services by the garages to the appellants, and it was therefore unnecessary to address the other issues raised. Decisions about the application of VAT are highly fact sensitive; in this case the transaction between the garages must be understood in the context of wider arrangements. There was no indication that the appellants’ role included undertaking responsibility for the carrying out of repairs.
The deduction of input tax is meant to relieve traders of VAT payable or paid in the course of their economic activities. The appellants’ own profit and loss is unaffected by VAT as they pay the garages out of a float provided by the company in Gibraltar. Also, the consequence of input tax deduction should be that VAT is only borne on the supply the final consumer, in this case the supply of services by the garage to the insured.
For judgment, please download:  UKSC 24
For the Court’s press summary, please download: Press Summary
For a non-PDF version of the judgment, please visit: BAILII