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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> The People's Dispensary for Sick Animals (PDSA) v Revenue & Customs [2012] UKFTT 362 (TC) (31 May 2012) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02048.html Cite as: [2012] STI 2521, [2012] SFTD 1142, [2012] UKFTT 362 (TC) |
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[2012] UKFTT 362 (TC)
TC02048
Appeal number:TC/2012/1247
VAT – Input Tax – The Appellant a “not for profit” incorporated Society providing welfare and charitable services for sick and injured animals – Was the Appellant entitled to recover VAT on veterinary fees – No – The Pet Aid scheme was a non-economic activity – the veterinary supplies made to the pet owners not to the Appellant – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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THE PEOPLE’S DISPENSARY FOR SICK ANIMALS (“PDSA”)
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Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY’S |
Respondents |
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REVENUE & CUSTOMS |
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TRIBUNAL: |
Judge Michael Tildesley OBE |
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Mohammed Farooq |
Sitting in public at Tribunals Service, Phoenix House, 1-3 Newhall Street, Birmingham on 16, 17 and 18 April 2012
David Southern counsel for the Appellant
Vinesh Mandalia counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, for HMRC
© CROWN COPYRIGHT 2012
DECISION
1. The Appellant appeals against HMRC’s decision to refuse the following voluntary disclosures:
(1) A voluntary disclosure in the sum of £2,201,250.00 for the VAT periods 11 April 2004 to June 2007;
(2) A ‘Fleming claim’ dated 26 March 2009 in the sum of £1,917,323.00 for the periods March 1993 to December 1997 inclusive.
(3) A voluntary disclosure dated 29 March 2010, in the sum of £3,854,999 for the VAT periods 1 November 2007 to 31 August 2011.
7. HMRC disagreed with the Appellant’s contention relying on three separate arguments which were
(1) The Pet Aid scheme was not an economic activity (Non-Economic issue).
(2) The supplies of services by Pet Aid practices were made to the registered pet owners not to the Appellant (To Whom issue).
(3) The Appellant was making exempt supplies of insurance services (Insurance issue).
8. The Tribunal heard evidence from Dr Stuart Duff, Principal Veterinary Surgeon, and Mr Russell Eaton, Head of Accounting and Financial Control, for the Appellant. The witness statement of Ms Lesley Gilding, HMRC’s review officer, and an agreed bundle of documents were admitted in evidence.
14. The scheme was open to pet owners who did not have the financial resources to pay for veterinary services. A pet owner was eligible for the scheme if he lived within the postcode boundary of a Pet Aid practice, in receipt of housing or council tax benefit and registers in advance with the Appellant. The application for registration must be supported by a payment of £5[1] by way of a postal order and documents evidencing receipt of Housing or Council Tax Benefit.
15. The payment of ₤5 was described as an administration charge (hereinafter known as the registration fee[2]) in the application form. The registration fee was initially ₤2 when the scheme was introduced and has been increased incrementally since 1993. Dr Duff explained that a fee was imposed so that pet owners understood the value of the services offered by the Appellant. The level of the fee was a balancing act to ensure that principal donors were not discouraged from making donations and that animals did not suffer.
16. The Appellant on receipt of a completed application form issued a certificate to the pet owner valid for a fixed period of six months[3]. The owner must produce the certificate each time he visited a Pet Aid practice. A pet owner who was not registered or did not hold a valid certificate would not be entitled to receive veterinary services free of charge.
(1) Number of first 100 registrants x allocation;
(2) Number of second 100 registrants x allocation;
(3) Number of subsequent registrants x allocation;
(4) Number of Class A chronic cases x allocation;
(5) Class B chronic cases x allocation;
(6) Special payments;
(7) VAT on (1-6) above;
(8) A deduction for donations received.
“These monthly payments should be regarded as a fund awarded to the practice for the provision of the Pet Aid practice service, to an ethically acceptable standard free of charge to all registered pets requiring veterinary attention”.
(1) The Appellant and registered pet owners, whereby the owners pay a charge to the Appellant and are issued with a certificate of eligibility which entitles the owners to free veterinary services from Pet Aid practices for their nominated pets during the currency of the certificate.
(2) The Appellant and Pet Aid practices, whereby the Appellant supplies the practices with a pool of money to fund the treatment of sick and injured animals whose owners are unable to afford private veterinary fees.
(3) The Pet Aid practices and registered pet owners, whereby the Pet Aid practices provide diagnosis and treatment of the sick and injured animals belonging to registered pet owners.
35. HMRC’s interpretation of the relationships was that they constituted three separate transactions. The transaction between the Appellant and the pet owners was not a taxable supply for consideration. The predominant purpose of the Appellant’s dealing with the pet owners was to further its charitable objects of providing free veterinary services to those who cannot afford them. The Pet Aid practices supplied their veterinary services to the pet owners not to the Appellant. The fact that the Appellant provided the Pet Aid practices with a pool of money to fund the veterinary services did not change the nature of the supply made by the practices to the owners. The Appellant by providing the money pool was simply fulfilling its charitable objects. In HMRC’s analysis the pet owners were the recipients of the supplies of veterinary services in which case the VAT charged on those supplies by the Pet Aid practices was irrecoverable. The pet owners were the final consumers. The pool of money provided by the Appellant to the Pet Aid practices constituted third party consideration for the supplies by the practices to the pet owners.
36. The Appellant argued that underlying HMRC’s contentions was the unspoken assumption that if a charity was acting as a charity, it could not be acting as a business. In the Appellant’s view, this assumption had no bearing upon the correct application of the VAT directive which was concerned with whether the Appellant was carrying on an economic activity. The fact that the activity was charitable was co-incidental. The Appellant referred to a range of decisions (CCE v RSPCA VAT decision 618; HMRC v Three Counties Dog Rescue [2011] TC 01653 and CCE v Church Schools Foundation [2001] EWCA Civ 1745) where charitable organisations were found to be undertaking economic activities.
(1) The financial scale of the operation with ₤6 million spent annually on the scheme.
(2) The degree of administrative resource and professional expertise involved.
(3) The continuous operation of the scheme since 1993.
(4) The scheme was part of the Appellant’s primary business and not some peripheral activity.
(5) The payment of fees by pet owners to gain eligibility to the scheme.
(6) The scheme was designed to provide a workable and cost conscious solution and replaced previously unaffordable arrangements.
38. HMRC contended that the Appellant’s activities insofar as they related to the operation of the Pet Aid scheme was not an economic activity for the purposes of Articles 2(1)(c) and 9(1) of the Council Directive 2006/112/EC. Further the provision of Pet Aid to those eligible was not a taxable supply made by the Appellant in the course or furtherance of any business carried on by the Appellant. According to HMRC the true nature of the Appellant’s activity was to provide charitable support to ensure that veterinary treatment was available to sick and injured animals for pet owners who appeared to the Appellant to be unable to afford private veterinary fees. The Appellant was not concerned with the supply of services to the pet owners for consideration.
39. HMRC submitted that the registration fee paid by pet owners wishing to register with the Pet Aid scheme was outside the scope of VAT. The fee was paid to cover the Appellant’s administration costs and was a flat fee entirely unrelated to the cost of the services provided by the Pet Aid practices. There was no direct link between the payment made by the pet owners and the supply of services from Pet Aid practices. Thus the Appellant was not making a taxable supply to the pet owners in the course or furtherance of any business carried on by it.
40. By a letter dated 24 March 1993, the Appellant informed HMRC[4] that it would be introducing a Pet Aid scheme with effect from 1 July 1993 and sought confirmation of its view that the registration fee would be outside the scope of VAT. The grounds put forward were that the fee was not a prepayment for treatment services but intended to recover part of the Appellant’s administration costs, and that the Pet Aid scheme was a non business activity. HMRC responded on 5 May 1993 confirming that the registration fee could be treated as non business activity.
41. By letter dated 3 January 1997 the Appellant informed HMRC that it was considering a subsidised service rather than a free one, and sought confirmation as to whether the charge under such an arrangement would constitute a taxable business activity and so enable the recovery of related input VAT. HMRC indicated on 10 January 1997 that a subsidised service would be a taxable supply which would enable the recovery of input tax on those supplies.
42. On 1 March 2004 the Appellant wrote to HMRC requesting confirmation of its ruling in 1997 on the taxable character of the proposed subsidised services. HMRC confirmed its 1997 ruling on 17 March 2004.
43. On 14 November 2007 the Appellant following the RSPCA decision made a voluntary disclosure requesting the repayment of input tax on the basis that the registration fee paid by pet owners was consideration for the taxable supply of treatment. HMRC rejected the voluntary disclosure and that rejection formed the basis of this appeal. HMRC, however, at that time expressed the view that the Pet Aid registration fee was consideration for a taxable supply. On review dated 29 March 2010 HMRC overturned its decision regarding the status of the registration fee, stating that it was outside the scope of VAT. The Appellant has not introduced a subsidised service.
47. HMRC accepted that the Appellant was a taxable person, having been registered for VAT with effect from 6 July 1981 and that it did make taxable supplies. The dispute concerned whether a particular aspect of the Appellant’s activities, the Pet Aid scheme, was an economic/business activity.
48. The word "business" is not exhaustively or precisely defined in the VAT legislation. The High Court in C & E Comrs v Lord Fisher [1981] STC 238 at 246 set out six indicators to ascertain whether the activity is properly to be regarded as a business:
(1) Whether the activity is a serious undertaking earnestly pursued or a serious occupation not necessarily confined to commercial or profit-making undertakings.
(2) Whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity.
(3) Whether the activity has a certain measure of substance as measured by quarterly or annual value of taxable supplies made.
(4) Whether the activity is conducted in a regular manner on sound and recognised business principles.
(5) Whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration.
(6) Whether the taxable supplies are of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them.
49. The Tribunal makes the following findings of fact in relation to the Pet Aid scheme:
(1) The Appellant has operated the Pet Aid scheme on a continuous basis since 1993, which has been earnestly carried out in pursuit of its charitable objective of providing free veterinary treatment to sick and injured animals of pet owners who could not afford the fees of veterinary surgeons.
(2) The Pet Aid scheme was well organised and efficiently run. The relationships between the parties to the scheme were documented clearly setting out their respective obligations. The Appellant exercised control over the costs of the scheme, which ensured its affordability. The scheme had been set up to overcome the financial weaknesses of the previous scheme.
(3) The Appellant incurred significant annual expenditure of about ₤6 million on the Pet Aid scheme.
(4) The expenditure of the Pet Aid scheme was funded 93.34 per cent (₤5.6 million) from public donations, the majority of which comprised legacies, and 6.66 per cent (₤0.4 million) from the registration fees.
(5) The registration fees had increased incrementally since the inception of the scheme: ₤2 (1993), ₤3 (1995), ₤5 (2008), and ₤7.50 (November 2011).
(6) The contribution of the registration fees to the annual cost of running the scheme was minimal.
(7) When fixing the level of the registration fee the Appellant ensured that it did not represent a significant departure from its charitable object of free veterinary services which would have deterred the giving of donations.
(8) The payment of the registration fee entitled pet owners to free veterinary services from Pet Aid practices for their nominated pets during the currency of the certificate.
(9) A pet owner would not receive free veterinary services unless he had been registered under the scheme and had paid the registration fee.
(10) The registration fee was payable whether or not the eligible pet owner received treatment for his nominated animal during the currency of the certificate.
(11) The registration fee was a fixed flat fee which had no relationship to the actual costs of the veterinary treatment if administered to the registered animal during the currency of the certificate.
(12) A registered pet owner was not required to contribute to the treatment costs of the Pet Aid practice in respect of his sick or injured animal, although donations were encouraged.
(13) The Appellant described the registration fee in the application form as an administration fee.
(14) The Appellant provided Pet Aid practices with a regular pool of money to fund free veterinary services to sick and injured animals of eligible pet owners.
(15) The per capita payments to the Pet Aid practices were made regardless of whether the pet owners have attended the practice.
(16) The Appellant did not provide the veterinary services direct to the pet owners.
52. The Tribunal considers that its findings on the character of the actual supplies that make up the Pet Aid scheme carried weight in determining whether the Appellant was engaged in a business activity. The critical supply is the one between the Appellant and the pet owner. The Appellant maintained that this was a taxable supply of services. The European Court of Justice in, Staatssecretaris van Financien v Cooperatieve Aardappelenbewaarplaats (Case 154/80) [1981] ECR 445 and Tolsma Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509 has emphasised that a provision of services is taxable only if there is a direct link between the service provided and the consideration received.
“I also hold that where payments were made for treatment there was a direct link and on that point I accept the submission of Mr Thornhill who posed the question why was the payment made? to which the answer followed because the treatment had been carried out, nor do I consider that the policy of RSPCA not to enforce such payments makes any difference”.
(1) The size of the registration fee was not related to the potential benefits afforded to the pet owner from the Pet Aid scheme. The fee was a flat fee which was the same for all pet owners. The amount was nominal which has only seen a small increase since the inception of the scheme in 1993. Under the scheme pet owners received different degrees of benefit from no to expensive treatment for the same payment. The Tribunal is satisfied that the necessary reciprocity or direct link has not been established between the payment of the registration fee and the benefits under the Pet Aid scheme (see Apple & Pear Development Council v CCE (Case 102/86) [1988] STC 221 at 235).
(2) The purpose of the payment was to give the Pet Owner access to free veterinary services, which has been funded overwhelmingly (93.34 per cent) by charitable donations. The provision of free veterinary services to sick and injured animals of owners unable to pay for private veterinary fees was the Appellant’s charitable object not incidental to the object.
58. In view of its findings the Tribunal agrees with HMRC’s characterisation of the registration fee which was that it was outside the scope of VAT. The fee was a contribution to cover the administration costs of the Appellant, and not a taxable supply by the Appellant in the course or furtherance of any business carried on by it.
63. The Appellant contended as a matter of law that where a person arranges a supply and receives a benefit from that supply for which he pays that supply is made to him. It is irrelevant that the same transaction may also constitute a supply to someone else (C&E Comrs v Redrow Group Plc [1999] STC 161. The Appellant received benefits from paying for the veterinary services, namely, enabling the fulfilment of its charitable object and simultaneously discharging its obligations to the pet owners. In the Appellant’s view the payment to the Pet Aid practices did not constitute third party consideration. The decision of The Court of Justice in Loyalty Management v R & C Comrs. (Case C-53/09 and C-56/09) [2010] STC 2651 was concerned with business promotion schemes and had no relevance to the disputed issues in this Appeal. Essentially the Appellant was involved in one overall transaction not two separate transactions.
64. The Appellant saw no merit in HMRC’s argument that a finding in its favour compromised the fundamental principle that VAT was a tax on consumption. According to the Appellant the reason why the pet owners only paid VAT on the registration fees and not on the veterinary fees was that they indirectly received the benefit of large charitable donations which was VAT free. The Appellant stated that its situation was analogous to zero-rated supplies which were subsidised by every taxable and exempt supplies, in that the input tax was recoverable even though no output tax was paid.
65. HMRC disagreed with the Appellant’s submissions contending that VAT was charged at each stage of the supply chain and that where there was a supply for consideration by a taxable person the final burden fell on the consumer. The Court of Justice in Loyalty Management emphasised that consideration of economic realities was a fundamental criterion for the application of the common system of VAT. Such consideration involved identifying the nature of the transactions involved.
66. According to HMRC the facts of this Appeal showed that the veterinary services were supplied solely to the pet owners. The Pet Aid practices and the Appellant regarded the pet owners as clients of the practices. When treatment was required the registered pet owner would take his sick or injured animal to the Pet Aid practice. The diagnosis and the treatment were made by the Pet Aid practice in consultation with the owner. The practice was obliged to provide that treatment without consultation with and or approval from the Appellant. Under this arrangement the pet owner was liable to pay for the treatment. The only reason that he did not was because of his financial circumstances. The Appellant in pursuit of its charitable object provided Pet Aid practices with a pool of money to pay for the treatment of animals belonging to registered pet owners. This pool of money constituted third party consideration for the supplies to pet owners which meant that the VAT incurred was irrecoverable as the supplies were to the final consumer, the pet owner.
(1) The principle of the common system of VAT involves the application to goods and services up to and including the retail trade stage, of a general tax on consumption exactly proportional to the price of the goods and services whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged (Banca popolare di Cremona Soc Coop arl v Agenzia Entrate Ufficio Cremona (Case C-475/03) [2006] ECR I – 973).
(2) The consideration of economic realities is a fundamental criterion for the application of the common system of VAT, and secondly as regards the identification of the person to whom goods/services are supplied (Auto Lease Holland BV v Bundesamt fur Finanzen (Case C-185/01) [2005] STC 598).
(3) Only an economic definition of the supply of goods/services (Tribunal’s italics) is compatible with the objectives of the VAT directive. This view is in accordance with the purpose of the VAT directive, which is designed inter alia to base the common system of VAT on a uniform definition of taxable transactions. This objective might be jeopardised if the pre-conditions for a supply of goods/services varied from one member state to another (Auto Lease).
(4) Identification of the nature of the transactions is necessary to provide an answer to the to whom question (Loyalty Management).
(5) It is not a requirement of the VAT directive that for a supply of goods or services to be effected for consideration, the consideration for that supply must be obtained directly from the person to whom the goods or services are supplied. The directive provides that the consideration may be obtained from a third party (Loyalty Management).
(6) The six characteristics of a supply of services are (1) it must have constituted a transaction, (2) something must have been done by the person said to have made the supply, (3) that which was done must not fall within the definition of a supply of goods, (4) that which was done must have been capable of being used by and for the benefit of an identified recipient (5) the benefit given to an identified recipient must be capable of being regarded as a cost component of the activity of another person in the commercial chain, (6) that which was done must have been done for a consideration: (a) there must be a legal relationship between the provider of the service and the service; (b) pursuant to the relationship there must have been reciprocal performance; (c) to amount to consideration the remuneration received by the provider of the service must constitute the value actually given in return for the service supplied (Mirror Group Newspapers Ltd v C & E Commrs [2000] STC 156).
(7) The fact that someone else had also received a service as part of the same transaction, did not deprive the taxable person who had instructed the service and who had to pay for it, of the benefit of the deduction (Redrow Group plc). The Tribunal did not accept HMRC’s submission that the decision in Loyalty Management had questioned the correctness of the decision in Redrow Group plc.
(8) But to ask who benefited from a service is not necessarily to find the answer to the question of to whom the service was supplied (R&C Commrs. v Jeancharm Ltd [2005] STC 918).
68. Turning to the facts of the Appeal, the Tribunal agrees with HMRC’s analysis that the economic reality of the Pet Aid scheme was that it consisted of three separate transactions, namely:
(1) The Appellant and registered pet owners, whereby the owners pay a charge to the Appellant and are issued with a certificate of eligibility which entitles the owners to free veterinary services from Pet Aid practices for their nominated pets during the currency of the certificate.
(2) The Appellant and Pet Aid practices, whereby the Appellant supplies the practices with a pool of money to fund the treatment of sick and injured animals whose owners are unable to afford private veterinary fees.
(3) The Pet Aid practices and registered pet owners, whereby the Pet Aid practices provide diagnosis and treatment of the sick and injured animals belonging to registered pet owners.
77. The Court of Justice in a series of cases[5] sets out the criteria for determining whether a supply of goods/services was effected for consideration which apply equally to the question of third party consideration and can be summarised as follows:
(1) There must be a direct link between goods supplied or services provided and the consideration received.
(2) There must be a legal relationship between the supplier and recipient pursuant to which there is reciprocal performance, the remuneration received by the supplier constituting the value actually given in return for the supply.
(3) The consideration must be capable of being expressed in money.
(4) The consideration is a subjective value.
78. The Appellant’s argument regarding capitation fees and the number of treatments is dealt with by the subjective value criterion. Lord Walker of Gestingthorpe in Lex Services plc [2003] UKHL 67 at 79 explained subjective value:
“…. that such consideration is a subjective value since the basis of assessment for the provision of services is the consideration actually received and not a value assessed according to objective criteria”.
79. Lord Walker referred to Lord Justice Hobhouse’s formulation of subjective value in Rossgill Group Limited v Customs and Excise Commissioners [1997] STC 811:
“The second question involved the value of the barter element in the supply of the blouse. The value is that which the parties put on it, attributed to it, in the actual transaction between them. It is not a valuation exercise but simply the giving of an answer to a factual question, which is normally a simple exercise. In the present case the answer is provided by the parties own documentation”.
82. The Tribunal summarises its findings as follows:
(1) The pet owners instructed the Pet Aid practices to treat their sick and injured pets, and received the benefit of those supplies of veterinary services in the form of diagnosis and treatment of their animals.
(2) The pet owners had an agreement with the Appellant that it would pay for the veterinary services on their behalf.
(3) The Appellant did not instruct the Pet Aid practices on the treatment of the sick and injured animals belonging to registered owners.
(4) The Pet Aid practices administered the treatment to the sick or injured animals without consultation with or the approval of the Appellant.
(5) The benefits identified by the Appellant of essentially furthering its charitable objects were incidental and indirect to the services supplied by Pet Aid practices.
(6) The fact that the self billing invoice named the Appellant for the purposes of paying the veterinary services was not determinative of the identity of the recipient of the veterinary services.
(7) The nature of the Appellant’s relationship with the Pet Aid practices was that it stepped in for the pet owner and paid his bill for the veterinary services.
(8) The capitation and additional payments for chronic conditions funding arrangements was the agreed method for paying for the individual treatments.
84. The above analysis is consistent with the principles underpinning the common system of VAT. The Appellant asserted that the supplies of the Pet Aid practices were used for the purpose of its taxable supplies to the registered owners in the sense that there was a direct and immediate link between the two supplies with the veterinary services being a cost component of the taxable supplies. In this respect the Tribunal agrees with HMRC’s submission that the concept of direct and immediate link incorporates an economic relationship between the cost of the incoming supply and the price of the outgoing supply. In this Appeal the Tribunals finds that there was no direct and immediate link between the two supplies because the cost of the veterinary treatments as compared with the price charged for registration was so disproportionate with costs exceeding price by 1,500 per cent[6].
86. This only comes into play if the Tribunal is wrong on either the non-economic or the to whom issue. The issue presupposes that the supplies of the Pet Aid practices were made to the Appellant. Given that position the Appellant states that it was entitled to recover the VAT on the supplies of the veterinary services because they were a cost component of the taxable supplies to the registered pet owners. HMRC disagrees contending that the supplies to the taxable owners were exempt supplies of insurance services.
88. HMRC argued that the transaction between the Appellant and the pet owners had all the essential hallmarks of an insurance transaction. The situation here was that in return for prior payment of the registration fee, the Appellant indemnified the pet owner against the cost of veterinary treatment for his sick or injured animal provided the treatment fell within the scope of the Pet Aid scheme. The registration fee was akin to a premium, and the risk covered by the Appellant was illness or injury to the animal belonging to the pet owner.
89. Group 2 of schedule 9 of the VAT Act 1994 exempts from VAT insurance transactions and reinsurance transactions. Prior to 1 January 2005 the exemption was restricted to a supply of insurance made by a permitted insurer. The legislation was changed as a result of the decision of the Court of Justice in Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] STC 270 which ruled that any person supplying insurance qualified for the exemption, as did supplies of insurance transactions effected by block policyholders.
90. There is no legal definition of insurance. The Court of Justice in Card Protection Plan stated [1999] STC 270 at 291:
“16. The Sixth Directive does not define the expressions 'insurance transactions' and 'insurance agents' used in art 13B(a).
17. With respect, first, to the interpretation of the expression 'insurance transactions', it must be observed that EC Council Directive 73/329 does not define the concept of insurance either. However, as the Advocate General states in para 34 of his opinion, the essentials of an insurance transaction are, as generally understood, that the insurer undertakes, 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.
18. It is not essential that the service the insurer has undertaken to provide in the event of loss consists in the payment of a sum of money, as that service may also take the form of the provision of assistance in cash or in kind of the types listed in the annex to EC Council Directive 73/239 as amended by EC Council Directive 84/641. There is no reason for the interpretation of the term 'insurance' to differ according to whether it appears in the directive on insurance or in the Sixth Directive.
19. Moreover, it is common ground that the expression 'insurance transactions' in art 13B(a) covers in any event cases where the transaction is carried out by the actual insurer who has undertaken to cover the risk insured against. As the United Kingdom government has correctly pointed out, it is for the national court to determine whether CPP itself has accepted insurance obligations”.
91. In Medical Defence Union v Department of Trade [1979] 2 All ER 421 the judge held there must be three specific elements present in any contract of insurance:
(1) the contract must provide that the insured will become entitled to something on the occurrence of some event;
(2) the event must be one which involves some element of uncertainty and
(3) the insured must have an insurable interest in the subject matter of the contract.
92. VAT Notice 701/36 which sets out HMRC’s policy on insurance regarded generally something as insurance for VAT purposes if it was an activity that required the provider to be authorised as an insurer under the provisions of the Financial Services and Markets Act 2000 (FSMA). The provisions of FSMA make it illegal for UK businesses to effect contracts of insurance without being authorised to do so (with the exception of certain bodies specifically granted exemption from the need for authorisation). The VAT notice acknowledged the decision in Card Protection Plan and that insurance supplied by unauthorised insurers was exempt from VAT. The VAT Notice, however, warned that HMRC might refer unauthorised insurers to the Financial Services Authority in case it wished to prosecute.
93. At the hearing the Tribunal expressed concerns about the presentation of this issue particularly by HMRC. Until raised by the Tribunal there was no reference to the legal position prior to 1 January 2005 which affected part of the period covered by the voluntary disclosures. The evidence did not deal with the question of whether the Appellant was an authorised insurer. The Tribunal acknowledges that the burden of proof is on the Appellant. The Tribunal, however, considers that HMRC has some responsibility to establish what it asserts on the issue of insurance.
94. In some respects the analysis of the insurance issue is strained by the fact that it is the third alternative scenario presented by HMRC for denying the Appellant’s voluntary disclosures. This means that the Tribunal has to assume that the Appellant was engaged in economic activities in respect of the Pet Aid scheme and that the supplies of the Pet Aid practices were made to the Appellant. Those assumptions are contrary to the Tribunal’s findings on the first two issues which are in the alternative. In the Tribunal’s view it may have been better for HMRC to focus its case on a narrower range of issues.
(1) The Appellant’s activities in so far as they related to the operation of the Pet Aid scheme did not constitute economic activities.
(2) The registered pet owners were the recipients and the consumers of the veterinary services from the Pet Aid practices. The Appellant was not a recipient of those services either on its own or in conjunction with the pet owners.
(3) The transaction between the Appellant and the pet owners was not an exempt supply of insurance.
[1] ₤7.50 from November 2011.
[2] The charge paid by the registered owners was variously described in the Appeal proceedings as an access charge, administration charge and registration fee. The Tribunal adopts the neutral registration fee as the appropriate description in the decision.
[3] 12 months in the case of pensioners.
[4] The respondents were then known as Her Majesty’s Customs and Excise.
[5] See Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA) (Case 154/80) [1981] ECR 445 at 454, Julius Fillibeck Söhne Gmbh & Co KG v Finanzamt Neustadt (Case C-258/95) [1998] STC 513, Kuwait Petroleum (GB) Ltd v Customs and Excise Commissoners (Case C -48/97) 1999 STC 48, & 2001 STC 62
[6] The annual costs of the Pet Aid scheme were ₤6 million. The annual contribution from registration fees was ₤0.4 million.