On May 1, 2013 the Supreme Court dismissed the taxpayer’s appeal in WHA Ltd and anor v. CRC.
The supply of insurance services is exempt from VAT, with the result that the insurer is unable to recover any input VAT it incurs on supplies of goods and services in the course of its business. This means that the insurer cannot recover any input VAT that it has to pay with respect to the repair bill. This makes the VAT a real cost to the insurer.
In this case a group of companies, involved in the supply of motor breakdown insurance services, put in place a scheme to minimize the overall VAT liability of the group. In this scheme various entities were involved . The question in this case (in order for the scheme to work) was whether or not there was a supply of repair services from the garages to WHA Ltd. (part of the group of companies in the scheme).
The Supreme Court held that there was no such supply to WHA Ltd. The supply of repair services was made to the insured person, and not to WHA Ltd. Where an insurer meets the costs of repair by paying the garage, this should be seen as a payment of a third party within the meaning of the VAT Directive.
The Supreme Court also indicated that the deduction of input VAT is meant to relieve the trader in question of the VAT payable or paid in the course of his economic activities. However, the profit and loss of WHA Ltd. is unaffected by VAT as it pays the garages out of a sum of money that it receives from another company.
In addition to that the Supreme Court indicated that the consequence of input VAT deduction should be that VAT is only borne on the supply to the final consumer. The effect of dismissing the appeal is that the VAT is borne on the supply of services by the garage to the final consumer, namely the insured.