R v Commissioners of Customs and Excise, ex parte Lunn Poly Ltd and Another

JurisdictionEngland & Wales
Judgment Date02 April 1998
Date02 April 1998
CourtQueen's Bench Division

Queen's Bench Divisional Court

Before Lord Justice Kennedy and Mr Justice Maurice Kay

Commissioners of Customs and Excise, Ex parte Lunn Poly Ltd and Another

Insurance - differential travel insurance premium tax unlawful

Differential travel insurance premium tax unlawful

The provisions of the Finance Act 1997 which introduced differential rates of insurance premium tax on contracts of insurance sold by or through, among others, travel agents were incompatible with European Community law, in so far as those provisions constituted an aid within the meaning of article 92(1) of the EC Treaty, and were thus illegal by reason of an absence of notification to and clearance by the European Commission pursuant to article 93(3). Accordingly, the provisions could not lawfully be applied.

The Queen's Bench Divisional Court so held in a reserved judgment when granting a declaration to the applicants, Lunn Poly Ltd, a travel agent and part of the Thomson Travel Group, and Bishopsgate Insurance Ltd, a specialist travel insurer selling policies mainly through travel agents, and part of a group ultimately owned by a Dutch company and a Belgian company.

Mr Gerald Barling, QC and Mr James Flynn for the applicants; Mr Kenneth Parker, QC and Mr Aidan Robertson for the Commissioners of Customs and


MR JUSTICE MAURICE KAY said that section 21 of the Finance Act 1997 amended section 51 of the Finance Act 1994 by replacing the previous uniform rate of insurance premium tax of 2.5 per cent in respect of insurance contracts which included contracts of travel insurance with two rates, a standard rate of 4 per cent and a higher rate of 17.5 per cent: see paragraph 4(1) of Schedule 6A to the 1994 Act, as inserted by section 22(3) of the 1997 Act.

The differential rates were introduced to address the perceived practice of value shifting, that is, exploiting tax differentials by lowering the prices of high-taxed items and raising the prices of low-taxed items when the two items were sold together.

Some retailers were suspected of cutting prices on those goods or services subject to value-added tax at 17.5 per cent and raising the prices of associated insurance exempt from VAT but subject to the current uniform rate of insurance premium tax of 2.5 per cent.

The applicants, who claimed to be disadvantaged by the differential rates and by the fact that they were subject to the higher rate, sought to show that the government's belief that the practice was...

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1 books & journal articles
  • United Kingdom
    • European Union
    • Study on the enforcement of State aid law at national level Part I. Application of EC State aid rules by national courts.
    • 1 January 2006
    ...by competitors: R v Customs and Excise Commissioners, ex parte Lunn Poly Limited and another, Queen's Bench Division (Divisional Court) [1998] STC 649, judgment of 2 April 1998 (B) Facts and legal issues: Lunn Poly Limited and Bishopsgate Insurance Limited sought judicial review of the diff......

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