Homeserve Membership Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blackburne |
| Judgment Date | 18 June 2009 |
| Neutral Citation | [2009] EWHC 1311 (Ch) |
| Date | 18 June 2009 |
| Court | Chancery Division |
| Docket Number | Case No: CH/2008/APP/0631 |
[2009] EWHC 1311 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL
TRIBUNAL CENTRE: LONDON
TRIBUNAL REF: LON 06/9002
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blackburne
Case No: CH/2008/APP/0631
Dominic Kendrick QC and James Henderson (instructed by Slaughter & May) for the Appellant
Andrew Macnab (instructed by HMRC) for the Respondents
Hearing dates: 19 and 20 May 2009
Mr Justice Blackburne :
Introduction
This appeal, which is from a decision of the VAT and Duties Tribunal (Sir Stephen Oliver QC as Chairman) released on 25 July 2008, raises a short point on the operation of Insurance Premium Tax (“IPT”). IPT is imposed by the Finance Act 1994 as amended (“the 1994 Act”). In what follows references to sections are to sections of the 1994 Act.
By its decision, the Tribunal dismissed an appeal by Homeserve Membership Ltd (“Homeserve”) brought by notice of appeal dated 11 July 2006 against the confirmation on review by HM Revenue and Customs (“HMRC”) of a decision to the effect that part of a sum —described as an “arrangement and administration fee”—paid by an insured person to Homeserve as part of the arrangements whereby the insured entered into a contract of insurance with Inter Partner Assistance SA (“IPA”) was to be regarded as a payment received under that contract and formed part of the premium by reference to which IPT was chargeable. IPA, which is a Belgian company, carries on business as an insurance company in the United Kingdom. The appeal is brought by Homeserve (previously known as Homeserve GB Ltd and before that as Home Service (GB) Ltd) as the party financially affected. Mr Dominic Kendrick QC and Mr James Henderson appeared for Homeserve. Mr Andrew Macnab appeared for HMRC who are the respondents to the appeal.
Briefly stated, Homeserve acts as an insurance intermediary. It designs and administers “assistance insurance”, for example plumbing and drainage assistance in the case of a domestic emergency at the house of the insured homeowner. Under the scheme, Homeserve locates an insurer, negotiates terms of cover with that insurer and then offers to the public the insurance-backed service which, if taken up, it then administers. As described in paragraph 4 of the decision:
“The cover provided by an assistance insurance contract involves the “homeowner” buying, for example, plumbing and drainage cover for a year and paying, say, £59.99. The cover gives the homeowner access in an emergency via a hotline to a local Homeserve-approved plumbing or drainage engineer who will attend to the emergency within two hours. Payment of the engineer's service is, within certain limits, met by the providers of the cover. The homeowner has the right to claim up to four times in the year of cover and permanent repairs are guaranteed for the lifetime of the cover.”
The principal questions before the Tribunal were (1) whether when signing up to the service marketed by Homeserve there came into existence a contract between Homeserve and the homeowner as well as a contract of insurance (the “taxable insurance contract” as it is described in the 1994 Act) between IPA (as insurer) and the homeowner (as the insured) and (2) if there did, whether such contract was “separate” within the meaning of section 72(1A)(b) of the 1994 Act. That provision, which was inserted into the 1994 Act by the Finance Act 1997, provides, so far as material, as follows:
“(1A) Where an amount is charged to the insured by any person in connection with a taxable insurance contract, any payment in respect of that amount is to be regarded as a payment received under that contract by the insurer unless -
…
(b) the amount is charged under a separate contract and is identified in writing to the insured as a separate amount so charged.”
The relevance of the questions considered is that in the marketing material sent to the homeowner (in the case of the plumbing and drainage cover considered by the Tribunal) in which the homeowner is invited to sign up to the assistance cover thereby offered, he (or she) is told that if the cover is taken up two contracts will be entered into, one with Homeserve for which the cost to the homeowner will be £14 (being a part of the overall payment of £59.99) and the other with the insurer. Homeserve keeps the £14 and does not account for it to the insurer. In addition to providing services to the homeowner, the Homeserve group supplies administration and claims services to the insurer as the insurer's agent. The relevant Homeserve company is paid by the insurer for these services out of the premium paid by the homeowner. IPT is therefore levied on this element of the sum paid. The question is whether the £14 fee retained by Homeserve is also subject to IPT.
The contention of HMRC before the Tribunal was that, notwithstanding the wording in the marketing material (and similar wording in the contractual terms of the arrangements to which the homeowner is invited to sign up), in truth only one contract is entered into by the homeowner who takes up the service on offer and pays the £59.99, namely the insurance contract between that homeowner and IPA; no contract is entered into between him and Homeserve to which the £14 (part of the £59.99) relates. But, HMRC went on to contend, if there is such a contract it is not a “separate contract” within the meaning of paragraph (b) of section 72(1A). The result of this, if correct, is that the £14 ranks as a “payment received” along with the remainder of the £59.99 under the contract of insurance, as described in the opening words of section 72(1A) and, as such, is chargeable to IPT as part of the premium received by the insurer under the contract of insurance. In that event, it does not rank as an amount “charged under a separate contract” within the exception to the operation of section 72(1A) provided by paragraph (b). The contention of Homeserve, by contrast, was that the £14 is charged under a separate contract for the purpose of paragraph (b) and, as such, is outside the scope of section 72(1A) and thus not subject to IPT as part of the premium received by the insurer.
The Tribunal found that the arrangements to which the homeowner signs up do give rise to a contract between Homeserve and the homeowner but went on to find that the contract is not a “separate contract” within the meaning of paragraph (b). Homeserve appeals against the second of those two findings; HMRC does not appeal against the first of them. The sole issue in the appeal therefore is whether the contract which the Tribunal found to exist between Homeserve and the homeowner is “a separate contract” for the purpose of paragraph (b). It is common ground that, if it is, the £14 is “identified in writing to the insured as a separate amount so charged” which is the second limb to the exception constituted by paragraph (b) and, as such, a part of what has to be shown if that exception is to apply.
Although, as will appear, the Tribunal considered only one example of assistance insurance, involving a payment by the specimen homeowner of no more than £59.99 of which the amount claimed by Homeserve to be exempt from IPT was £14, this was on the footing that that example was representative of a much wider range of assistance insurance offered by Homeserve to domestic households. Paragraph 10 of the Tribunal decision indicates that the sum involved in the appeal is considerable. The amount assessed on IPA covers two periods: £170,544 plus interest for the period from 1 July 2003 to 31 December 2003 and £932,189 plus interest for the period 1 January 2004 to 30 June 2005. (In fact the decision, at paragraph 10, slightly misstates the second period.) These sums represent the aggregate of the arrangement and administration fees paid by homeowners during the two periods.
Background
The promotion of the assistance insurance marketed by Homeserve and covered by IPA derives from an agreement, described as an “Agreement for Assistance Insurance (the “AI Agreement” as it is referred to in the Tribunal decision), between Homeserve (then known as Home Service (GB) Ltd) and IPA dated 21 July 2000. Under the agreement Homeserve and IPA agree to use the services of Home Hotline Ltd (“the Hotline Company”) as exclusive service provider of the claims management in respect of all forms of assistance insurance cover purchased by the homeowners. Its functions include the selection and approval of service engineers. The terms of that AI Agreement were subsequently varied but not in any respects material to the issue arising on this appeal. Those terms, and their effect, were sufficiently summarised in the Tribunal decision as follows:
“16. The AI Agreement records the wish of Homeserve and IPA to develop insurance products and to provide assistance insurance to domestic households. It operates as a rolling agreement terminable on any 31 March on three months prior notice (Clause 3.2). The obligations of Homeserve under the AI Agreement are set out in Clause 5. Homeserve is to use all reasonable endeavours to facilitate the marketing and promotion of the products and to carry out promotional mailings. Homeserve is to agree in advance with IPA any new benefits, changes in the wording or new schemes to be underwritten by IPA and the net premium to be paid to IPA. Homeserve provides underwriting information to allow IPA to provide the requisite insurance. Homeserve agrees to process all applications for insurance and to accept applicants as policyholders and to complete the documentation. Homeserve is to issue any renewals of policies as and when due. Homeserve is to handle all calls...
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