Intelligent Money Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 September 2023 |
| Neutral Citation | [2023] UKUT 236 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Mr Justice Rajah, Judge Ashley Greenbank
Upper Tribunal (Tax and Chancery Chamber)
Value added tax – Exemption – Insurance – Whether fees paid to the administrator of a self-invested personal pension (SIPP) were consideration for an insurance transaction – No – VATA 1994, Sch. 9, Grp. 2, item 1 – Appeal dismissed.
In Intelligent Money Ltd v R & C Commrs [2023] BVC 510, the Upper Tribunal upheld the decision of the FTT in Intelligent Money Ltd that the fees paid to the administrator of a self-invested pension plan (SIPP) were taxable and not exempt from VAT as insurance transactions.
IML provided services in connection with the provision, operation and administration of SIPPs so as to preserve their tax effective status. They were not responsible for the management of funds in the SIPP. IML had accounted for output tax on the fees it received, but later submitted a claim for overpaid VAT asserting the fees were exempt from VAT being insurance transactions which fell under VATA 1994, Sch. 9, Grp. 2, item 1. The claim was rejected and IML appealed to the FTT.
The FTT, having reviewed the relevant case law, and identified the key features of an insurance contract, reviewed the case law relating to the exemption of insurance for VAT purposes. It found a supply was exempt from VAT under the insurance exemption where, in return for a fixed and known amount, the insurer agreed to provide benefits on the materialisation of an identified risk where the scope of the benefits is specified at the outset. The fees paid to IML were consideration for services and did not include any premium for risk and IML did not assume any financial risk. On that basis it decided the fees payable were not consideration for an exempt insurance transaction.
IML appealed against the decision on the grounds that the FTT had erred in its interpretation of what constituted an insurance transaction for VAT purposes, specifically that the lack of investment risk was determinative but, under its analysis, certain types of life insurance policies could not benefit from exemption. The factors that had to be taken into account in determining whether a supply was an ‘insurance transaction’ for the purpose of the insurance exemption were essentially the same as those that apply when determining whether a contract was, as a matter of domestic law, a contract of insurance. The reference to a risk must simply mean a contingent or trigger event for the payment or service in question.
HMRC argued the FTT had correctly identified the essential features of an insurance transaction for the insurance exemption including the prior payment of a premium. The fees paid to IML were for services and not for the provision of benefits on the materialisation of a risk.
The issue for the UT was, therefore, what criteria the CJEU had set down for the purpose of the insurance exemption, and whether IML had met those criteria.
The UT considered four key decisions of the CJEU and identified the essential features of an insurance transaction as being that the insurer undertook, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded. They implied a contractual relationship between the provider of the insurance service and the insured party such that the insured party must obtain some protection from risk. Exemption from VAT was therefore limited to transactions involving the coverage of risk, although it was not a requirement that the insurance service provider had to ultimately bear the risk. It could be borne by another person.
The UT agreed with HMRC that none of the fees paid to IML represented a premium. They were consideration for services provided and not for the provision of the life and death benefits under the scheme. The contributions made by members to the fund were invested under the terms of the scheme rules for the benefit of the member, his or her dependants and/or other beneficiaries. The only service provided by IML when the life and death benefits were paid was the administrative service of releasing the funds, for which there was a separate charge.
Accordingly, the UT concluded, the supplies made by IML, in connection with the provision of the IM SIPP, did not fall within the insurance exemption. The appeal was dismissed.
The CJEU case law in this area is well established and consistent, confirming the principles first articulated in Card Protection Plan Ltd v C & E Commrs . It is contrary, however, to the only domestic decision referred to in this case Winterthur Life UK Ltd (formerly Provident Life Association Ltd) but the UT considered the Tribunal in that case would, today, have reached a different conclusion in light of the subsequent CJEU case law.
Comment by Angela Bedi, Senior Tax Writer, Croner-i Ltd.
David Bedenham, counsel, instructed appeared for the appellant
Andrew Macnab, counsel, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs appeared for the respondents
[1] This is an appeal by the appellant, Intelligent Money Limited (“IML”), against a decision of the First-tier Tribunal (the “FTT”) dated 5 May 2022 with neutral citation [2022] UKFTT 0338 (TC) (the “FTT Decision”) dismissing a claim by IML for repayment of VAT overpaid. The respondents are the Commissioners for His Majesty's Revenue and Customs (“HMRC”).
[2] The appeal concerns the liability to VAT of services provided by IML in connection with the provision, operation and administration of self-invested personal pension schemes (“SIPPs”), and, in particular whether those supplies fall within the exemption from VAT for “insurance and reinsurance transactions” contained in item 1 Group 2 Schedule 9 to the Value Added Tax Act 1994 (“VATA”).
[3] Item 1 Group 2 Schedule 9 VATA implements article 135(1)(a) of Council Directive 2006/112/EC (referred to as the “Principal VAT Directive” (“PVD”)), which provides for the exemption of “insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents”. It is no part of either party's case that the provisions of Group 2 Schedule 9 VATA do not properly implement article 135(1)(a) PVD. We have referred to the exemption from VAT provided by item 1 Group 2 Schedule 9 VATA and article 135(1)(a) PVD as the “insurance exemption” in this decision.
[4] The FTT decided that the services provided by IML did not fall within the insurance exemption and dismissed IML's appeal. IML appeals to this tribunal with the permission of the FTT.
[5] The facts are not in dispute. They were set out by the FTT at paragraphs [7] to [36] of the FTT Decision. We gratefully adopt the FTT's summary, which we have set out below.
[7] The contractual documentation which must be considered to determine the nature and liability of the supplies made by the Appellant consists of:
- An application form completed by a prospective member of the scheme
- A fee schedule
- The terms and conditions of the scheme
- The key features document (required to be provided under the regulatory provisions governing the provision of pensions)
- The trust deed and rules of the SIPP
[8] A copy of the composite document comprising the first 4 contractual documents is annexed to this judgment.1
[9] The parties took the Tribunal to the provisions of these documents at considerable length. The Tribunal has carefully considered all the terms referenced by each of the parties. However, for the purposes of this judgment the Tribunal does not propose to quote from the documents at length.
[10] At the outset it is to be noted that the defining characteristic of a SIPP, including that offered by the Appellant, is that the contractual holder/their financial advisor (and not the Appellant) is responsible for the management of the funds held in the member's SIPP.
[11] It is also significant that the SIPP is established so as to meet the detailed and specific requirements of the Finance Act 2004 (“FA 2004”), pursuant to which members may, subject to those requirements, save for their retirement in a tax efficient manner. Further detailed rules are imposed on the operation of the SIPP pursuant to the Pensions Act 2008 (“PA 2008”) . The rules place particular limits on when and how payments can be made from the SIPP to either the member or other beneficiaries. There are also certain restrictions on the level of contributions which can be made to the SIPP in respect of which tax relief can be claimed. The detail of these requirements is not relevant to the issue to be determined in this appeal. The Appellant's commitment to the investing members that the SIPP will be managed so as to preserve the tax effective status of the regime is, however, highly relevant.
[12] An individual who wants to apply to become a member of the IM SIPP will complete the application form and provide their personal details together with what is referred to as an expression of wish as to “those people that [they] would like to receive any remaining benefits payable under the Intelligent SIPP on [their] death”. It is noted that “This agreement does not bind the trustees of the scheme but is a means to help the trustees pay out [the] benefits in line with [the member's] wishes”. The applicant warrants that they understand the non-binding nature of the expression of wishes in the declaration section.
[13] Much of the detail requested to be provided ensures that the applicant is eligible for tax relief on contributions proposed to be made to the SIPP and ensure that the pension provided meets the requirements of FA 2004.
[14] The application form includes a number of declarations (again many driven by the requirements of either the PA 2008 or FA 2004) including a declaration...
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