TC09596 - [2025] UKFTT 00895 (TC)

Fecha: 16-May-2025

WHA Ltd

WHA Ltd

127.

The appeal in WHA Ltd concerned the effectiveness of a scheme (“Project C”) which was designed to minimise the liability to VAT of a group of companies (“Oriel”) involved in providing motor breakdown insurance (“MBI”). The purpose of the scheme with which the appeal was concerned was to redress that competitive disadvantage by enabling the VAT element of the cost of repairs to be recovered by one or other of the members of a group of companies to which an MBI insurer belonged, thereby reducing costs and enabling the insurer to offer lower premiums. These arrangements resulted in the VAT paid by warranty on the repair services and parts supplied by the garage being irrecoverable. This was the problem which Project C was designed to solve.Project C had two strands, each of which was based on the operation of statutory provisions. The aim was that the first strand should be enough to secure the recovery of the VAT paid on the repairs. The second strand was designed to provide a fall-back position should the first not hold.

128.

HMRC refused the claims made by WHA and Viscount for the repayment of tax. WHA and Viscount then appealed to the Value Added Tax and Duties Tribunal (“the tribunal”). Before the tribunal, HMRC challenged the effectiveness of Project C on the following bases:

(1)

First, they maintained that there was no supply of services by the garages to WHA; if that contention were accepted, it was fatal to the success of the scheme since both strands of Project C depended upon it being accepted that the repair services were supplied by the garages to WHA.

(2)

Secondly, they maintained that if there was indeed a supply of repair services to WHA, its onward supply to Viscount was in any event subject to VAT; if that contention were accepted, it was fatal to the success of the first strand.

(3)

Thirdly, they maintained that Viscount was not, in any event, entitled to recover input tax under the UK legislation in question; if that contention were accepted, it was fatal to the success of the second strand.

129.

HMRC also advanced further arguments based on the alleged artificiality of the scheme, including a contention based on the EU doctrine of abuse of rights.

130.

On appeal to the Supreme Court, the court decided there is no supply of repair services by the garages to WHA. At [26] to [27], Lord Reed said this:

“26.
As this court has recently observed (Her Majesty’s Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15, para 68), decisions about the application of the VAT system are highly dependent upon the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another. It is therefore necessary to begin by considering carefully the facts of the present case. As was also noted in the Aimia case at para 38, the case-law of the Court of Justice indicates that, when determining the relevant supply in which a taxable person engages, regard must be had to all the circumstances in which the transaction in question takes place. Furthermore, as Lord Walker explained in Aimia at paras 114-115, in cases where a scheme operates through a construct of contractual relationships, as in the present case, it is necessary to look at the matter as a whole in order to determine its economic reality. Accordingly, although the transaction of particular importance is that between the garage and WHA, it has to be understood in the wider context of the arrangements between the insured, NIG, Crystal, Viscount, WHA and the garage.
27.
The contractual position is not conclusive of the taxable supplies being made as between the various participants in these arrangements, but it is the most useful starting point. I shall begin with the contract of insurance between the insured and NIG. Two sample policies have been produced in these proceedings. Their terms, so far as material, are to similar effect, and it is sufficient to refer to one of them, described as “Motor Cover”. The policy makes it clear that the insurer is undertaking to meet the cost of repairs to the vehicle falling within the scope of the policy: it is not undertaking responsibility for the repairs themselves. The policy states, for example, that “following a mechanical breakdown of your vehicle, this policy will assist with the cost of repair of the parts listed”; and the terms and conditions provide that “NIG will not pay more than the limits shown on the proposal form or, if lower, in this policy document”. Although the terms and conditions also provide that NIG “reserves the right to provide replacement parts and to carry out repairs under this policy or to arrange for their provision by other persons”, the implication of that clause is that NIG is under no obligation to do so.”

131.

It does not follow from the requirement for there to be a ‘legal relationship’ between the supplier and the recipient of a supply of services that the relationship must be contractual, or (if it is) that the terms of the contract are necessarily conclusive.