VAT: Consideration Required For A Taxable Supply To Arise
Suppliers sometimes face the difficult question of whether or not VAT is payable on certain supplies. In a blow to businesses, the Upper Tribunal has found in favour of HMRC and ruled that the supply of black box devices by an insurance intermediary was not a taxable supply for VAT purposes.
Black box devices are increasingly used by drivers (particularly young drivers), largely reflecting the increase in motor insurers offering lower premiums on condition the insured uses a black box.
At issue in this case1 was whether such a supply and fitting of black box devices to cars as a condition of insurance policy amounted to a supply of goods or services for consideration to policy holders.
Was there ‘consideration’?
The company concerned, an insurance intermediary, took the view that the provision and fitting of the devices were taxable supplies made to policyholders, therefore it could recover the attributable input VAT. To satisfy the test of whether there is a taxable supply for VAT purposes, there must be:
1) a supply
2) a legal relationship
3) reciprocal performance
4) a direct link and
5) consideration that could be expresses in monetary terms.
The most challenging question arising in this appeal was whether the supply of services to policyholders was a “supply for a consideration”. The Upper Tax Tribunal (UTT) itself acknowledged that it was a difficult issue.
On the facts, the UTT did not accept the company’s argument that policyholders were agreeing to enter into insurance contracts in consideration for black box installations. It agreed with the FTT’s finding that there was no supply by the company to policy holders, for consideration or otherwise. Particularly, the insured had no right to dispose of the device when it was installed.
On that basis, the UT observed, if there was a disposal by the company to policyholders, it was free of charge. The costs incurred were not, therefore, attributable to a taxable supply made for consideration and any input VAT was not recoverable by the company.
What does this mean?
The presence, or otherwise, of consideration was crucial to the outcome of this particular case. The notion of ‘contractual exchange’ has been relied on the courts in previous cases – and in this case - to demonstrate whether consideration for a supply existed for the purposes of VAT.
“However, in the VAT world very little is straightforward” – particularly where “a supply comprises multiple elements”, the judge commented. Each case will be determined on its facts, but what’s clear is that the recipient must have provided consideration of some kind that could be put in monetary terms, for it to be treated as a taxable supply for the purposes of VAT,
It’s a reminder to businesses that VAT issues are not for the fainthearted – always take specialist legal advice from experienced and specialist tax solicitors.
1WTGIL Ltd v HMRC [2024] UKUT 00077 (TCC)
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