Young drivers can get a specialised form of motor insurance if they have a device fitted to the car which records and transmits information about how the car is being driven. In WTGIL v HMRC, the Court of Appeal had to consider whether the provision and fitting of these devices by ISL, an insurance intermediary, is an exempt supply or a taxable one.

As ISL is a member of the VAT group of which WTGIL is the representative member, the appeal was brought by WTGIL but I will follow the Court of Appeal in referring to ISL, rather than the representative member, as the supplier.

ISL claimed that the provision and fitting of the devices were taxable supplies made by ISL to the policyholders and that accordingly input tax on the purchase price of the devices and the fitting costs should be recoverable. HMRC disagreed; one of their arguments was that the relevant supplies were exempt.

The Court of Appeal agreed with HMRC. It held that the providing and fitting of “black box” devices in motor vehicles was part of the single exempt supply of insurance intermediary services. HMRC had won the case before the Upper Tribunal on a different ground and had lost on the exemption issue. In its respondent’s notice and before the Court of Appeal, however, HMRC made it clear it had not abandoned its primary argument on the exemption issue. The Court of Appeal decided it was logical to deal with the exemption issue first and, as it agreed with HMRC on the exemption issue, there was no need to consider the other issues raised by the taxpayer’s appeal.

What does this case add to the body of case law on the insurance intermediary exemption?

The Court of Appeal highlights the need to “strictly construe” exemptions from VAT but makes clear this does not mean they should be “restrictively construed”. Exemptions should not be construed in such a way as to deprive them of their intended effect. The Court of Appeal decided that the intended effect of the relevant exemption is that the basic exemption for “insurance and reinsurance transactions” should extend to “related services performed by insurance brokers and insurance agents”. The Court of Appeal concluded that the services of providing and fitting the devices were performed by ISL as an integral and essential element of the relevant insurance transactions and it would be artificial and unrealistic to exclude them.

The Court of Appeal referred to the Supreme Court’s decision in Secret Hotels for the general point that, where there is more than one contractual arrangement between multiple parties, when assessing the issue of who supplies what services to whom for VAT purposes, regard must be had to the totality of the circumstances in which the transactions take place and to the whole of the relationships between the various parties. The Upper Tribunal had rejected HMRC’s argument on the application of the exemption on the basis that it did not consider that ISL was acting in an intermediary capacity when it provided and fitted the devices. The Court of Appeal disagreed and expressed the view that the Upper Tribunal had over-compartmentalised the services of provision and fitting of the device and lost sight of the overall picture.