C R Smith Glaziers (Dunfermline) Ltd v Commissioners of Customs and Excise; CR Smith Glaziers (Dunfermline) Ltd v Edinburgh VAT and Duties Tribunal

JurisdictionEngland & Wales
JudgeLORD HOFFMANN,LORD SLYNN OF HADLEY,LORD WOOLF,LORD HOPE OF CRAIGHEAD,LORD WALKER OF GESTINGTHORPE
Judgment Date20 February 2003
Neutral Citation[2003] UKHL 7
Docket NumberNo 2
CourtHouse of Lords
Date20 February 2003

[2003] UKHL 7

HOUSE OF LORDS

The Appellate Committee comprised:

Lord Hoffmann

Lord Slynn of Hadley

Lord Woolf

Lord Hope of Craighead

Lord Walker

C R Smith Glaziers (Dunfermline) Limited
(Appellants)
and
Commissioners of Customs and Excise
(Respondents)(Scotland)
LORD HOFFMANN

My Lords,

1

The question in this appeal is whether a supplier of insurance and related services should be denied the exemption from VAT required by article 13B(a) of the EC Sixth Directive of 17 May 1977 on turnover taxes (77/388/EEC) on the ground that it failed to comply with a formal requirement prescribed by United Kingdom law.

2

CR Smith Glaziers (Dunfermline) Ltd ("the taxpayer") supplies double glazing. It gives a 10 year guarantee supported by an insurance policy (arranged by a broker with an established insurance company) to protect the customer against the risk of its insolvency. The charge to the customer consists of the price of the double glazing and additional charges for the insurance premium and services provided in arranging and administering the policy. There is no dispute that the supply of these additional services is prima facie exempt from VAT.

3

Section 38 of the Finance Act 1997, which came into force on 19 March 1997, prescribed new conditions for the exemption of UK suppliers of insurance and related services. It substituted the following provisions in Group 2 of Schedule 9 to the Value Added Tax Act 1994:

"Item No 1. The provision of insurance or reinsurance by a person who provides it in the course of -

(a)any insurance business which he is authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on, or

(b)any business in respect of which he is exempted under section 2 of that Act from the requirement to be so authorised….

4. The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services - (a)are related (whether or not a contract of insurance or reinsurance is finally concluded) to any such provision of insurance or reinsurance as falls, or would fall, within item 1, 2 or 3; and

(b)are provided by that broker or agent in the course of his acting in an intermediary capacity.

Notes:…

(3)Where -

(a)a person ('the supplier') makes a supply of goods or services to another ('the customer'),

(b)the supply of the goods or services is a taxable supply and is not a zero-rated supply,

(c)a transaction under which insurance is to be or may be arranged for the customer is entered into in connection with the supply of the goods or services,

(d)a supply of services which are related (whether or not a contract of insurance is finally concluded) to the provision of insurance in pursuance of that transaction is made by - (i) the person by whom the supply of the goods or services is made, …and

(e)the related services do not consist in the handling of claims under the contract for that insurance, those related services do not fall within item 4 unless the relevant requirements are fulfilled.

(4)For the purposes of Note (3) the relevant requirements are -

(a)that a document containing the statements specified in Note (5) is prepared;

(b)that the matters that must be stated in the document have been disclosed to the customer at or before the time when the transaction mentioned in Note (3)(c) is entered into; and

(c)that there is compliance with all such requirements (if any) as to -

  • (i)the preparation and form of the document,

  • (ii)the manner of disclosing to the customer the matters that must be stated in the document, and

  • (iii) the delivery of a copy of the document to the customer, as may be set out in a notice that has been published by the Commissioners and not withdrawn.

(5)The statements referred to in Note (4) are -

(a)a statement setting out the amount of the premium under any contract of insurance that is to be or may be entered into in pursuance of the transaction in question; and

(b)a statement setting out every amount that the customer is, is to be or has been required to pay, otherwise than by way of such premium, in connection with that transaction or anything that is to be, may be or has been done in pursuance of that transaction."

4

It is not disputed that the insurance-related services supplied by the taxpayer fell within Note (3). They were related to the supply of taxable double glazing. It was accordingly necessary to satisfy the relevant requirements as specified in Note (4). This means that a document containing the "statements" specified in Note (5) has been prepared and that the matters required to be stated have been "disclosed to the customer" at or before the time when the transaction was entered into. No relevant requirements as to the preparation and form of the document or manner of disclosure have been specified pursuant to the power in Note (4)(c).

5

The question in this appeal is whether the Note (4) requirements were satisfied by the taxpayer during the period from the date when they came into force, 19 March 1997 until 31 December 1997. I must describe the taxpayer's standard form of contract during the relevant period. On its face, it is headed by the word "Contract" in large letters. Most of the front page consists of boxes giving various options as to the size, form, materials, finishes and so forth of the windows. By reference to these boxes the salesman can look up the prices in his book and calculate the total due. At the bottom of the front page is a box for (among other things) the "Total Contract Price (ex VAT)", the VAT and the "Total Contract Price (inc VAT)". It must be assumed that these items were ordinarily filled in. Next to the box is a notice which says:

"Once signed this will be a legally binding document. Sign it only if you have read the whole of this page and the conditions printed overleaf and agree to be legally bound by them."

6

The front page contains no reference to insurance or the premium or any charge for insurance-related services. The back, however, contains a good deal of small print. There is a section headed "Practical Matters - what is included and what is not/who does what". This is followed by seven clauses (divided into sub-clauses) under the heading "Standard Conditions - sale/fitting of the products". Clause 3 is headed "Price/Payment terms" and clause 3.4 says:

"Where the total contract price is £1000 or more the installation is insurance backed and the premium of £16 is included in the total contract price."

7

Clause 6 is headed "Guarantee". Clause 6.3 says:

"In support of the guarantee CR Smith have in place dedicated resources on product services and customer support. In addition, where the total contract price is £1000 or more, an insurance policy is in place and incorporated in the total contract price are costs incurred for the making and arranging of the policy with the necessary support and administration of 10%. An insurance certificate will be issued to the customer once the total contract price has been paid in full."

8

Clause 1 contains various definitions, including a definition of "contract price", which is said to mean: "The total contract price shown overleaf, or, where the context so requires, the contract price as amended in accordance with these conditions." In fact, when one looks at the box overleaf, it contains two figures for "total contract price"; one "(ex VAT)" and one "(inc VAT)". But a reading of the standard conditions shows that "contract price" or "total contract price" is consistently used to mean the figure inclusive of VAT, that is to say, the amount which the customer actually has to pay, see, for example, clause 6.1: "the…guarantee will be enforceable provided the contract price and any other sums due in terms of the contract have been paid." Likewise in clause 6.3 itself, the reference to issuing an insurance certificate "once the total contract price has been paid in full" must mean payment of whatever the customer has to pay.

9

The question then is whether the contractual document contains the "statements" required by Note (5). There is no dispute that it states the amount of the premium, which is specified in clause 3.4 as £16. But the Commissioners say that it does not contain a statement "setting out every amount that the customer is…required to pay otherwise than by way of such premium". The reference to "10%" in clause 6.3 is in their submission inadequate.

10

No one would claim that clause 6.3 was elegantly drafted. It refers to "10%" but does not say of what. However, the only candidate for being the principal sum is the "total contract price", so it must mean 10% of that. Then, as I have already commented, there is a potential ambiguity about whether this means inclusive or exclusive of VAT. Again, for the reasons I have given, resort to the last words of the clause, together with other references in the document, indicate that the price inclusive of VAT was intended. Even once these textual problems have been resolved, the calculation is, as the Tribunal said "not as straightforward as it looks." It did not expand upon this observation but I think it meant that as the sum allocated to the charge for insurance services would be exempt from VAT, there could be some circularity in trying to calculate it as a percentage of the price including VAT. The Tribunal stated, however, that they were "satisfied that the amount could be ascertained from the written terms of the contract". This may have been generous to the taxpayer but was not questioned by the Extra Division on appeal.

11

But that, in the opinion of the Tribunal, was not enough. A statement "setting out the amount" meant a specific sum such as "£500". What clause 6.3 provided was a "formula", which was not a statement of the amount but a means by which the amount could be ascertained or...

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