United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2003] UKVAT V18253

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Claytons Upholstry Ltd v Customs & Excise [2003] UKVAT V18253 (30 July 2003)

EXEMPTION — furniture retailer — provision of fabric protector insurance to purchasers of furniture — whether premiums exempt supply of insurance or payment for treatment to furniture and so ancillary to supply of furniture itself — if supply of insurance whether conditions for exemption in note 2(3)(4)(5) to Group 2 Schedule 9 VATA 94 satisfied — appeal allowed

MANCHESTER TRIBUNAL CENTRE

CLAYTONS UPHOLSTERY LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr J D Demack(Chairman)

Sitting in public in York on the 2nd June 2003

Mr Christopher Prince of Prince Martin & Co for the Appellant

Mr Nigel Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

DECISION

The appellant company, Claytons Upholstery Ltd ("Claytons"), is a retailer of furniture. In four consecutive accounting periods in 1999 and 2000 it offered its customers fabric protection insurance cover.

It is the premiums paid for that cover that are at issue in the appeal. Claytons claims that they are exempt from VAT as falling within item 4 of Group 2 of Schedule 9 to the Value Added Tax act 1994. The Commissioners of Customs and Excise contend that they are essentially for certain treatment to the furniture which is a pre-condition of the insurance cover, and which is ancillary to the supply of the furniture itself, i.e. the supply in question is standard rated. Alternatively, the Commissioners maintain that, if the premiums are for insurance services, the profit element of them retained by Claytons does not fall within the exemption of item 4 because it does not meet the requirements of notes 3, 4 and 5 of Group 2.

Section 31 of the 1994 Act makes provision for Schedule 9. Item 4 of Group 2 of that Schedule so far as relevant, exempts "The provision by an insurance agent of any of the services of an insurance intermediary in any case in which those services are provided by that agent in the course of his acting in an intermediary capacity". Notes 3, 4 and 5 to Group 2 read as follows:

"(3) Where –

(a) a person ("the supplier") makes a supply of goods or services to another ("the customer"),

(b) the supply of the goods or services is a taxable supply and is not a zero-rated supply,

(c) a transaction under which insurance is to be or may be arranged for the customer is entered into in connection with the supply of the goods or services,

(d) a supply of services which are related (whether or not a contract of insurance is finally concluded) to the provision of insurance in pursuance of that transaction is made by —

(i) the person by whom the supply of the goods or services is made, or

(ii) a person who is connected with that person and, in connection with the provision of that insurance, deals directly with the customer

and

(e) the related services do not consist in the handling of claims under the contract for that insurance,

those related services do not fall within item 4 unless the relevant requirements are fulfilled.

(4) For the purposes of Note (3) the relevant requirements are —

(a) that a document containing the statements specified in Note (5) is prepared;

(b) that the matters that must be stated in the document have been disclosed to the customer at or before the time when the transaction mentioned in Note (3)(c) is entered into; and

(c) that there is compliance with all such requirements (if any) as to —

(i) the preparation and form of the document,

(ii) the manner of disclosing to the customer the matters that must be stated in the document, and

(iii) the delivery of a copy of the document to the customer

as may be set out in a notice that has been published by the Commissioners and has not been withdrawn.

(5) The statements referred to in Note (4) are –

(a) a statement setting out the amount of the premium under any contract of insurance that is to be or may be entered into in pursuance of the transaction in question; and

(b) a statement setting out every amount that the customer is, is to be or has been required to pay, otherwise than by way of such a premium, in connection with that transaction or anything that is to be, may be or has been done in pursuance of that transaction.

In the four consecutive accounting periods in 1999 and 2000 beginning with that of 09/99, Claytons offered fabric protection insurance cover to purchasers from it of certain lines of furniture. The insurance was provided by Guardsman policies at Lloyds an authorised insurer. The risks insured under the policies were those of individual customers of Claytons, and not Claytons itself. It was a pre-condition of the cover that the furniture to be insured be treated with a chemical supplied by Guardsman which reduced the effect of staining. Claytons applied the chemical and collected the premiums from its customers. Guardsman recommended certain premium levels, but Claytons was free to charge lesser sums if it so chose. For a high standard of cover premiums of over £130 were recommended, of which over 80 per cent formed Claytons commission. Commission rates for lesser standards of cover were equally high. (In practice Claytons pre-purchased blocks of policies, and was provided with any additional supplies of the chemical required free of charge).

At p. 11 of Claytons bundle of copy documents is a "sales order/cash account". It relates to the sale of a 3-piece suite and chairs to a customer whose name is illegible for a VAT inclusive price of £1,249. It also indicates that separately the purchaser took out the fabric protection insurance with Guardsman at a premium of £135. The document is dated and signed by the purchaser.

On the basis of the "sales order/cash account" and the parol evidence of Mr C F Burt, the managing director of Claytons, I find that Claytons made separate supplies of furniture and insurance. I thus also find that the premiums paid by purchasers of furniture for fabric protector insurance provided by Guardsman were for separate supplies of insurance services, as defined in item 4 of Group 2. And unless those services were removed from exemption by notes 3, 4 and 5 to Group 2 they were exempt from VAT.

Dealing first with note 3, it is plain that Claytons made supplies of goods –furniture - which were taxable supplies. It is equally plain, and I find, that the transactions under which insurance was to be arranged for customers were entered into in connection with the supplies of goods, and that supplies of services which were related to is common ground that the related services did not consist in the handling of claims under the insurance contracts.

But even where the requirements set out in the last preceding paragraph were satisfied, unless the "relevant requirements" as defined in note 4 were also met, the supply was not exempt. It will be recalled that the "relevant requirements" are that a document must be prepared containing the amount of any insurance premium payable and every amount the customer is required to pay otherwise than as such premium; that the contents of the document must be disclosed to the customer at or before the time of the related transaction; and that certain requirements which may be made by the Commissioners by notice are complied with.

In 1999 and 2000 the only relevant notice issued by the Commissioners was notice 701/36/97 which, at para 3.7, made a single reference to note (4)(e), and that was in relation to goods sold under one of the margin schemes (a matter of no relevance in the present context). Consequently, I may ignore the final requirement referred to in the last preceding paragraph. As to the other two requirements, I am satisfied, and find, that the "sales order/cash account" at p. 11 of Claytons bundle contained all the information needed to satisfy the "relevant requirements".

It follows that I hold that the difference between the insurance premiums charged by Claytons to its customers and the amounts it paid to Guardsman were exempt from VAT. In so holding, I assume that Claytons holds documents identical, or very similar, mutatis mutandis, to the document at p. 11 of its bundle in respect of all transactions covered by the assessments under appeal. If I am wrong in that assumption, my decision shall relate only to those transactions in respect of which it holds such documents. In the event of any disagreement between the parties on the point, either shall be at liberty to apply to the tribunal for the appeal to be relisted so that I may determine it.

As, strictly speaking, Claytons appeal is against four assessments to tax totalling £3467 notified on 8 August 2000, subject to the observations I made in the last preceding paragraph, I allow the appeal by discharging those assessments.

David Demack

Chairman

Release Date:

MAN/00/777