© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
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H5. Insurance exemptions
GENERAL
Relationship between VAT and insurance premium tax
- Scope not the same
"(1) Subject to subsection (1A) below, any contract of insurance is a taxable insurance contract." (FA 1994, s.70)
"[31] In support of their position that this is the case, HMRC have cited a number of EC authorities as well as the Upper Tribunal decision in Wheels,’ to show that under European and domestic VAT law a taxpayer who is not an insurer performs an exempt insurance transaction when it procures insurance which cover the drivers against certain risks from the insurer under a policy which that taxpayer has with the insurer. I entirely accept that that line of EC authorities, and Wheels shows just that. But that finding is concerned with the interpretation of the expression “insurance transaction” for the purposes of European and domestic VAT, whereas I am concerned with interpreting the expression “provision of insurance” for the purposes of a purely domestic tax, IPT. And HMRC have provided me with no authority as to why I should read across the principles in the VAT cases and in particular in Wheels, into my interpretation of IPT legislation." (GB Taxi Services Limited v. HMRC [2020] UKFTT 507 (TC), Judge Popplewell)
"[2.1]...Some premiums received under contracts of insurance are liable to IPT. Care should be taken not to confuse IPT with VAT, they’re 2 very different taxes. The term ‘insurance transaction’ for VAT purposes is not the same as the term ‘insurance contract’ for IPT purposes. Unlike VAT, IPT cannot be recovered. More information on IPT can be found in Notice IPT1: Insurance Premium Tax." (VAT Notice 701/36)
- Supply may be insurance transaction (VAT) but not give rise to a contract of insurance (IPT)
"[51] And I can see no inconsistency between this finding, and the finding that the appellant is carrying on a business which includes the provision of insurance to the drivers. It seems to me that when Parliament introduced IPT in 1994 it decided that the broad concept of “insurance transaction”, the phrase used in EC and domestic VAT legislation, was not the appropriate concept for the purposes of IPT. Whilst it was broad enough to cover insurance provided under a contract of insurance, it would also cover situations where, as in Wheels, and indeed in this appeal, the benefit of the policy was passed on by a taxpayer, “not being an insurer” (Wheels at [38]) to someone else. By introducing the additional criterion that the provision of the insurance must be under a contract of insurance, Parliament provided a more restrictive criterion to whittle down the broader “provision of insurance” so that, to my mind, it was to apply only to contracts which had the characteristics of a contract of insurance and thus to “true” (my terminology) contracts between insurance companies and their insured. Parliament can be treated as knowing the issues associated with the interpretation of the concept of “contract of insurance”, and that it is a term of art used in a number of statutory provisions. And to have made a conscious decision to include that term with its associated interpretive difficulties, into the legislation. My view is that this was intended to restrict IPT to what most people accept are normal commercial or domestic insurance arrangements between an insured and an insurance company, and not to other arrangements which might have certain characteristics of an insurance contract." (GB Taxi Services Limited v. HMRC [2020] UKFTT 507 (TC), Judge Popplewell)
- Insurance supply may be standard rated if part of a single taxable supply, but still liable to IPT
"[1]...The Appellants (‘HMRC’) decided that Wheels makes a single supply of an insured vehicle to the drivers so that VAT is chargeable at the standard rate on the whole of the consideration including the £45. In November 2011, HMRC assessed Wheels for VAT of £66,859." (HMRC v. Wheels Private Hire Limited [2017] UKUT 51 (TCC), Judges Bishopp and Sinfield -on the facts held to be separate supplies)
Query the lawfulness of this possibility
"[67] Moreover, that interpretation is supported by the very purpose of the VAT Directive, which exempts insurance transactions but gives Member States, in Article 401 thereof, the possibility of maintaining or introducing a tax on insurance contracts. Consequently, if ‘insurance transactions’ refers solely to transactions performed by insurers themselves, the final consumer, such as a lessee in a leasing agreement, in circumstances such as those at issue in the main proceedings, might have to pay not only that tax but also VAT. Such a result would be contrary to the purpose of the exemption provided for by Article 135(1)(a) of the VAT Directive (see, to that effect, CPP, paragraph 23)." (BGZ Leasing C-224/11)
"[23] That interpretation is supported by the purpose of the Sixth Directive, which exempts insurance transactions but gives Member States, in Article 33, the possibility of maintaining or introducing a tax on insurance contracts. Consequently, if `insurance transactions' refers solely to transactions performed by insurers themselves, the final consumer might have to pay not only that tax but also VAT, in the case of block policies. Such a result would be contrary to the purpose of the exemption provided for by Article 13B(a)." (CPP C-349/96)
INSURANCE TRANSACTIONS
Characteristics of insurance transactions
- Insurer undertake to provide insured with service/payment agreed in the event of materialisation of risk covered
"[17]...However, as the Advocate General states in point 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." (CPP C-349/96)
"(1) The essential features of an insurance transaction are consistently stated by the CJEU to be that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of the materialization of the risk covered, with the service agreed when the contract was concluded (CPP [17], Mapfre [28], Aspiro [22], United Biscuits [30]). " (Intelligent Money Ltd v. HMRC [2023] UKUT 236 (TCC), Rajah J and Judge Greenbank)
- Insurance benefit may be money or service in kind
"[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 Directive 73/239 as amended by Directive 84/641..." (CPP C-349/96)
- Must be a contractual relationship between provider of insurance service and insured
"[58] ...Furthermore, an insurance transaction necessarily implies the existence of a contractual relationship between the provider of the insurance service and the person whose risks are covered by the insurance, that is to say, the insured party (Skandia, paragraph 41, and Taksatorringen, paragraph 41)." (BGZ Leasing C-224/11)
Non-insurers supplying insurance
- Supplier does not need to be an insurer
"[22] Such a supply of services by CPP constitutes an insurance transaction within the meaning of Article 13B(a). It is true that the exemptions provided for by Article 13 of the Sixth Directive are to be construed strictly (see Stichting Uitvoering Financiële Acties, paragraph 13). However, the expression `insurance transactions' is broad enough in principle to include the provision of insurance cover by a taxable person who is not himself an insurer but, in the context of a block policy, procures such cover for his customers by making use of the supplies of an insurer who assumes the risk insured." (CPP C-349/96)
- Procuring insurance in T's own name allowing T to sell cover to customers is supply of insurance by T to customers
"[20] However, CPP acknowledges that it merely promised its customers to do what was necessary for insurance to be provided to them by a third party, and that it did not itself undertake to provide insurance cover. In this respect, the Commission has pointed out that CPP is the holder of a group policy for its customers.
[21] In those circumstances, it must be noted that CPP is the holder of a block insurance policy under which its customers are the insured. It procures for those customers, for payment, in its own name and on its own account, to the extent of the services mentioned in the Continental policy, insurance cover by having recourse to an insurer. Consequently, for the purposes of VAT, there is a supply of services between Continental and CPP on the one hand, and between CPP and its customers on the other, and the fact that Continental under the terms of its contract with CPP provides insurance cover directly to CPP's customers is not material in this respect." (CPP C-349/96)
- Not limited to situations where T has a block policy
"[12] It appears from section 2.5 of Notice 701/36 and the submissions made to us by Mr McGurk that HMRC regard the existence of a block policy as a precondition of the application of the CJEU’s broad interpretation of insurance transaction in CPP. We do not read the CJEU’s decision that way. We do not consider that the use of the phrase “in the context of a block policy of which he is the holder” by the CJEU was intended to limit the expanded meaning of insurance transaction to situations where there is a block policy. There was a block policy in CPP and that was the context in which the question for determination arose. The CJEU’s application of the exemption to supplies by taxable persons who are not insurers but procure cover for their customers from insurers was not predicated on the existence of a block policy as opposed to any other type of policy. In our view, whether a taxable person who is not an insurer procures insurance for a customer using a policy of a particular type, such as a block policy or a group policy (both terms were used in CPP) or a fleet policy (as referred to before the FTT in this case), is not a determinative factor in deciding whether the supply is an exempt insurance transaction. That the CJEU’s broad interpretation of insurance transaction can apply to supplies by persons who procure insurance cover other than by means of a block policy is shown by the CJEU’s decision in Case C-224/11 BGŻ Leasing sp. zoo. v Dyrektor Izby Skarbowej w Warszawie [2013] STC 2162 (‘BGZ’)." (HMRC v. Wheels Private Hire Limited [2017] UKUT 51 (TCC), Judges Bishopp and Sinfield)
- Insurance where T is able to add drivers to policy (even if T makes a profit)
"[40] The fact that Wheels made a profit does not, however, preclude the reasoning of the CJEU in CPP from applying to this case because, as the FTT found, Wheels could add drivers to the policy and they were covered by it against the risk of liability for death, bodily injury or damage to property while using the insured vehicles. The FTT were, in our view, entitled to make that finding and, on the basis of it, conclude that Wheels provided insurance to the drivers. Accordingly, we consider that the supply by Wheels in this case is an insurance transaction within the exemption in Article 135(1)(a) of the Principal VAT Directive." (HMRC v. Wheels Private Hire Ltd [2017] UKUT 51 (TCC), Judge Bishopp and Sinfield)
- Even if driver would need to rely on T to enforce the cover
"[34] We do not accept this submission. The FTT found (and it was not challenged before us) that Wheels could add new drivers to the schedule during the policy year without notifying the insurer provided that certain prescribed criteria were met. As the policy document makes clear, Collingwood covered such drivers for their legal liability to third parties for death, bodily injury or damage to property arising out of the use of the insured vehicles. Mr McGurk sought to rely on a statement in the preamble to the policy document that “Nobody other than you (the Insured [ie Wheels]) and us (Collingwood Insurance Company Limited) has any rights that they can enforce under this contract except those rights that they have under road traffic law …”. We do not regard this as providing any support for Mr McGurk’s submissions. The relevant question, as the CJEU in BGZ expressly recognises, is whether the third parties obtain insurance cover against risks and in this case the drivers are so covered by Collingwood. It seems to us that Wheels, as well as insuring the vehicles, procured cover for those drivers by making use of the policy agreed with the insurer, Collingwood, even if the drivers would have to rely on Wheels to enforce that cover." (HMRC v. Wheels Private Hire Ltd [2017] UKUT 51 (TCC), Judge Bishopp and Sinfield)
- Includes T taking out insurance cover and reinvoicing the cost to the lessee who enjoys the benefit of that cover
"[62] It must be observed that a supply of insurance, such as that at issue in the main proceedings, cannot be subject to VAT simply because the insurance costs are re-invoiced in accordance with the contract concluded between the parties to a leasing agreement. The fact that the lessor takes out insurance at the request of its clients with a third party and then passes the exact cost billed by the third party to those clients cannot invalidate that finding. In such circumstances, in so far as the supply of insurance at issue remains unchanged, the amount re-invoiced constitutes the consideration for that insurance and, therefore, there is no need to submit such a transaction to VAT, since it is exempt pursuant to Article 135(1)(a) of the VAT Directive." (BGZ Leasing C-224/11)
At least where only the exact price is passed on
"[68] Finally it must be stated that that reasoning is based on the assumption that the lessor invoices the lessee for the exact amount of the insurance and that that reasoning cannot apply if the amount invoiced to the lessee for insurance costs is more than that invoiced to the lessor by the insurer." (BGZ Leasing C-224/11)