United Kingdom VAT & Duties Tribunals (Insurance Premium Tax) Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Insurance Premium Tax) Decisions >> Policy Administration Services Ltd v Customs and Excise [2004] UKVAT(IPT) IPT00011 (09 November 2004)
URL: http://www.bailii.org/uk/cases/UKVAT/IPT/2004/IPT00011.html
Cite as: [2004] UKVAT(IPT) IPT00011, [2004] UKVAT(IPT) IPT11

[New search] [Printable RTF version] [Help]

Policy Administration Services Ltd v Customs and Excise [2004] UKVAT(IPT) IPT00011 (09 November 2004)

IPT00011

INSURANCE PREMIUM TAX — agent arranging insurance for purchasers of mobile telephones — contract between agent and insurer by which agent undertook all administration of policies — customer's monthly payment composed of premium and service charge — FA 1994, s 72(1A)(b) — whether separate contract between customer and agent for administration service — no — whether payment made by customer to agent — no — entirety of customer's payment subject to tax — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

POLICY ADMINISTRATION SERVICES LIMITED

Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents

Tribunal: Colin Bishopp (Chairman)

Sitting in public in Manchester on 1 September 2004

Michael Conlon QC instructed by Ernst & Young LLP, chartered accountants, for the Appellant

David Gilchrist, counsel, instructed by the solicitor for Customs and Excise, for the Respondents

DECISION

I take the facts of this appeal, about which there was no material dispute, from the statement of agreed facts produced by the parties, the unchallenged statements of three witnesses and the various documents provided at the hearing. I heard no oral evidence.

Formally, the appeal is against a decision on review, dated 6 June 2003, that certain payments received, or at least collected, by the Appellant attract insurance premium tax. Although the Appellant is not an insurer and is therefore not itself liable to account for the tax (see Finance Act 1994, s 52) it is affected by the decision since, if the tax is due, it is the Appellant which will ultimately suffer it. The request for the review was made on its and the insurer's behalf by Ernst & Young, the chartered accountants, and the Appellant is thus entitled to bring this appeal (see s 59 of the 1994 Act).

The Appellant is Policy Administration Services Limited (PAS), a member of a group of companies all of which, directly or indirectly, are wholly-owned subsidiaries of Caudwell Subsidiary Holdings Limited. Other members of the group are Phones 4U Limited (P4U) and 4U Insurance (Isle of Man) Limited (4UI). P4U is a high-street retailer of mobile telephones and of airtime contracts.

The function of PAS is to arrange insurance, for customers of P4U, of the mobile telephones which they have obtained from P4U. The policies cover the customer against loss, damage and misuse of the telephone. PAS does not itself insure the telephones but instead places the insurance with London General Insurance Company Limited (LGI), a company at arm's length to PAS and its group. LGI is an authorised insurer permitted to underwrite business such as that placed with it by PAS. However, it reinsures the entirety of the risk with 4UI. In effect, therefore, the Appellant's group underwrites the risk and LGI is included in the arrangements for regulatory reasons (although it would, of course, have itself to indemnify policyholders should 4UI fail).

A customer wishing to acquire insurance is required to pay a monthly sum. Typically, the monthly payment is £7.99 of which, PAS says, £5.99 is the premium subject to insurance premium tax (IPT) and £2.00 is its own administration fee which is exempt from tax. Whether or not that contention is correct depends upon the interpretation to be placed on s 72(1A) of the Finance Act 1994. The subsection needs, however, to be put into its context if it is to be fully understood. So far as it is relevant to this appeal, s 72 of the Act reads as follows:

"(1) In relation to a taxable insurance contract, a premium is any payment received under the contract by the insurer, and in particular includes any payment wholly or partly referable to—

(a) any risk,

(b) costs of administration,

(c) commission,

(d) any facility for paying in instalments or making deferred payment (whether or not payment for the facility is called interest), or

(e) tax.

(1A) Where an amount is charged to the insured by any person in connection with a taxable insurance contract, any payment in respect of that amount is to be regarded as a payment received under that contract by the insurer unless—

(a) the payment is chargeable to tax at the higher rate by virtue of section 52A above; or

(b) the amount is charged under a separate contract and is identified in writing to the insured as a separate amount so charged …

(7) Where anything is received by any person on behalf of the insurer—

(a) it shall be treated as received by the insurer when it is received by the other person, and

(b) the later receipt of the whole or any part of it by the insurer shall be disregarded …

(8) In a case where—

(a) a payment under a taxable insurance contract is made to a person (the intermediary) by or on behalf of the insured, and

(b) the whole or part of the payment is referable to commission to which the intermediary is entitled,

in determining for the purposes of subsection (7) above whether, or how much of, the payment is received by the intermediary on behalf of the insurer any of the payment that is referable to that commission shall be regarded as received by the intermediary on behalf of the insurer notwithstanding the intermediary's entitlement."

Section 73 of the Act provides that an insurer is "a person or body of persons (whether incorporated or not) carrying on insurance business"; it was common ground that LGI does, but PAS does not, answer to that description. The same section provides that the word "tax" in s 72 means insurance premium tax. The provisions of the Act relating to higher rate tax are immaterial to this appeal. The effect of s 72, as was common ground, is that the entirety of the customer's monthly payment is in principle subject to IPT, and the amount for which the Appellant contends is brought out of the charge only if sub-s 72(1A)(b) applies.

There have been changes in the Appellant's contractual arrangements over the years; as Michael Conlon QC, who represented the Appellant at the hearing, put it, the arrangements have "evolved". It is accepted by the Appellant that before May 2002 the arrangements did not meet the requirements of section 72(1A)(b) and IPT was due on the entire payment made by the customer. Until then, the customer's payment was treated by the relevant contracts as one made to LGI. The Commissioners accept that from 1 February 2003 onwards, the arrangements do satisfy the requirements of sub-s 72(1A)(b), and (using the example I have set out above) IPT is due on the £5.99 regarded as premium, but not on the £2 regarded as the administration charge. The parties disagree about the correct treatment of the contractual arrangements which applied from May 2002 to the end of January 2003. Despite the brevity of that period and the comparatively small amount of each payment, I was told that the aggregate amount of IPT in dispute is in the order of £500,000.

In broad outline, the underlying arrangements have been the same throughout. PAS has always acted as an intermediary, placing each customer's insurance with LGI, handling the customers' payments, and dealing with any claims as well as the overall administration of the scheme which is referred to, in the literature produced for the benefit of customers, as "Premier Plan". Though I imagine that customers of P4U can, if they wish, arrange their own insurance, I was told that they are invited by the staff within P4U's retail outlets to place it through PAS, and no other means of effecting insurance is available in the shops. The premium payable for the insurance varies, depending upon a number of factors such as the value of the handset insured, but PAS's administration (or "service") charge is a constant £2 per month, regardless of the amount of the premium. The entirety of the customer's monthly payment is collected by PAS, by direct debit.

Each month, during the relevant period, PAS accounted to LGI for the premiums collected, less the value of any claims which it had met. The accounting method in use from May 2002 to January 2003 (unlike that in use before) allowed PAS to retain the £2 administration charge. The bulk of the payment due each month to LGI—that is, premiums less value of claims—was passed on to 4UI, LGI retaining for itself a "corporation fee" of a few pence per policy per month. The precise value of the corporation fee varied with the amount of the premium. From its £2 monthly charge, PAS paid as much as £1.30 to P4U as commission for its placing the insurance through PAS.

From the beginning of the scheme, there has been a written agreement between LGI and PAS. Although the underlying basis of the arrangement has not materially changed, there have been differences between the agreements in force from time to time. The version which came into effect on 1 November 2001 and remained in effect until 31 January 2003, after which it was superseded by the agreement now in use, provided by clause 3, entitled "Delegation of Powers", the following:

"The Corporation hereby appoints the Administrator as its agent to promote and market the Insurance and delegates to the Administrator the authority to transact the Insurance for its customers and other insurances as may be agreed from time to time between the Corporation and the Coverholder. During the term of this Agreement, the Administrator shall use its best endeavours to promote the sale of Insurance. In consideration of the Administrator performing its obligations under this Agreement, the Corporation shall pay to the Administrator in respect of each Insurance policy the Administration Fee and Commission at the rates set out in Appendix 1."

The Corporation is LGI, the Administrator is PAS and the Coverholder is each customer who has effected insurance.

The Administrator's obligations were spelt out in more detail in clause 6 of the agreement. This clause, entitled "Duties of the Administrator", provided (so far as material):

"6.1 The Administrator will:

1.1 at all times act in the best interests of the Corporation and will comply with any applicable laws or regulations relating to the sale of the Insurance and its duties under this Agreement.

1.2 apply premium rates as agreed by the Corporation as detailed in Appendix 1 or from time to time as new schemes are introduced.

1.3 issue Insurance policies in the form and manner as agreed by the Corporation.

1.4 handle, investigate and settle all claims in accordance with the policy wordings and any claims handling procedures required by the Corporation from time to time.

1.5 not (and will procure that its agents do not) make false or misleading claims about the Insurance or describe the Insurance or the cover provided by any Insurance policy in any manner which is inconsistent with the Insurance policy terms and conditions set out in Appendix 2.

1.6 procure that its agents will collect the appropriate premium, insurance premium tax and application details from customers and promptly submit them to the Administrator without set off or deduction of any kind, save for any commission payable to the agent which the Administrator may authorise the agent to deduct from the amount to be submitted to the Administrator. For the avoidance of doubt, the payment of any commission to any agent shall be the sole responsibility of the Administrator and shall not be payable by the Corporation.

1.7 act as the Corporation's agent and administrator in relation to the reinsurance of the Insurance and perform such administrative functions as the Corporation shall assign to the Administrator from time to time.

1.8 indemnify the Corporation and keep it indemnified from all and any liability it may incur in relation to the transfer to the Corporation of existing insurance policies administered by the Administrator and underwritten by third parties, including, but without limitation, any failure to notify any customer of the change of underwriter of such policies and any liability it may incur by reason of the wording of such insurance policies being in breach of any statutory or regulatory requirements."

Clause 8 of the agreement, entitled "Accounting", was in these terms:

"8.1 The Administrator shall be responsible for the collection of premiums in full from customers or its agents. The monthly Bordereaux described in Paragraph 9 shall be sent to the Corporation within 21 days of the close of each month together with an electronic transfer of funds to a bank account designated by the Corporation representing:

1.1 total Risk Premium (at the rates set out in Appendix 1); plus

1.2 Insurance Premium Tax calculated at the prevailing rate;

1.3 the Corporation Fee (at the rate set out in Appendix 1); less

1.4 total claims paid.

and the Administrator shall retain from the amount so collected its Administration Fee and Commission for the month in question.

2 The Administrator acknowledges and agrees that all monies it receives in relation to the Insurance (and whether in respect of Gross or Net Premiums (including unearned risk premium, claims reserves), taxes or otherwise) shall at all times be the property of the Corporation and shall not form part of the assets of the Administrator and shall be held on trust for the Corporation absolutely."

It is not necessary for present purposes to set out clause 9. Appendix 1, to which clauses 3, 6 and 8 refer, was designed to provide for the allocation of the customers' monthly payments to various purposes, which it achieved by means of a table divided into columns, one for each possible aggregate monthly payment, and rows, showing the amount appropriated from each possible monthly payment to those various purposes. The Appendix was divided into two sections: one for policies effected before 1 May 2002, but which were to be governed by the terms of the agreement, and the other for policies effected on or after 1 May 2002. Each section took the customer's aggregate monthly payment as the starting point from which the allocation proceeded.

Thus the table applicable to the earlier policies had as its first line "Customer pays" after which the columns recorded the various possible amounts, one to each column. The next row was entitled "Original gross premium excluding IPT". In the column which recorded £7.99, the example I have adopted, as the amount the "Customer pays", this row contained the figure £7.61. The two figures are related in that £7.99 is £7.61 plus IPT on that sum. The next row down was identified as "Less Administration Fee (Administrator)" and the amount was shown as (£0.45). That row was followed by one for "Less Commission (Administrator)", recording (£1.46). Those two sums were deducted from the "Original gross premium excluding IPT" of £7.61 to leave what appeared on the next row and was described as "Original Net Premium", namely £5.70. The next row showed the "Corporation Fee", in the event (£0.11); that sum was deducted so as to arrive, on the final row, at the "Risk Premium" of £5.59. The table therefore correctly reflected the Appellant's acceptance that until May 2002 the arrangements were such that the entirety of the customer's monthly payment attracted IPT; of PAS's gross administration fee and commission of £2, 9p represented the appropriate tax, leaving £1.91 (45p plus £1.46) as the net fee.

The second table in appendix 1, applying to policies brought into effect on or after 1 May 2002, was rather different. As in the first table, "Customer pays" occupied the first row, and I again adopt the column containing the amount of £7.99. The second row was entitled "Service charge", against which no amount appeared. Instead, the next two lines read "Administration Fee (Administrator)—(54p)" and "Commission (Administrator)—(£1.46)".Those two sums were deducted from the "Customer pays" amount of £7.99 to leave what was described on the next row down as the "Premium" of £5.99. The following row identified IPT at 29p, which was deducted to leave, on the following row, the "Original gross premium excluding IPT", as it was now described, of £5.70. Thereafter, as before, the "Corporation fee" of 11p was deducted, leaving the same risk premium of £5.59. By this scheme, assuming it correctly reflected the law, tax was reduced by 9p to 29p and the net sum due to the Appellant was increased by the same amount, that is from £1.91 to £2.

So far as I was made aware, while the Appendix was amended, the text of the agreement itself was not. However, over the period with which I am concerned there were changes in the forms which customers wishing to effect insurance were required to sign. Some of those changes were merely superficial and of no consequence here, but others were changes of substance. In each case the form consisted of a single sheet of paper, of A4 size. On the front, the P4U shop staff and the customer were required to fill in a number of details such as the customer's name and address, the identity of the handset and the date; this side of the form also contained a direct debit authority. The reverse set out the contractual terms and conditions.

The first version of the form, which was in use from May to August 2002—that is, in the earlier part of the period during which the second version of the table in Appendix 1 was in use—was entitled "Insurance Registration and Certificate of Insurance". The payment to be made by the customer was composed of two elements, a "service charge" and a "premium", the total of which was described as the "monthly cost". The customer was required to sign and date a "Customer Declaration" reading as follows:

"I Hereby apply for the specified cover. I understand that cover will be invalid should my direct debit, as advised by the Welcome letter I shall receive shortly, fail. I have read and accepted the terms and conditions of both the insurance policy and the agreement with Policy Administration Services Limited and that the equipment is in good working order at the time of application. I shall be liable to pay the first £ of any accepted claim."

The reverse of the form was headed "Premier Plan Insurance Terms, Exceptions and Conditions." The first paragraph read:

"In consideration of the Insured named in the Registration Form paying the monthly payment stated on the Registration Form overleaf Policy Administration Services Limited shall arrange for London General Insurance Company Limited Combined House, 15 Wheatfield Way, Kingston upon Thames, Surrey, KT1 2PQ, hereinafter referred to as 'the Company', subject to the Terms, Exceptions and Conditions herein to indemnify the Insured in respect of the Contingencies described below occurring during the Period of Insurance. The Insured Equipment stated in the Registration Form being the property or responsibility of the Insured or members of his/her family or staff permanently employee by the Insured."

It is apparent from what followed that the day-to-day administration of the scheme was carried out by PAS, to which the customer was required to refer any claim or other inquiry. Near the foot of the form appeared, in prominent type, the words "This Insurance is administered by Policy Administration Services Limited."

From September 2002 until the end of January 2003 the form in use differed in a number of respects. On the front, the title was "Insurance Registration". The premium appeared before the service charge in the calculation of the total monthly cost to the customer. The customer declaration too had different wording, as follows:

"I hereby apply for the specified cover. I understand that cover will be invalid should my direct debit, (as advised by the Certificate of Insurance I shall receive shortly), fail. I have read and accepted the terms and conditions of both the insurance Policy and the agreement with Policy Administration Services Limited and that the equipment is in good working order at the time of application. I understand I must pay the first of any accepted claim."

The title on the reverse was changed to "Premier Plan Mobile Phone Insurance—Terms and Conditions". The terms and conditions began with the following three clauses:

"1. Policy Administration Services Limited (the Administrator) has arranged on your behalf the Insurance with London General Insurance Company Limited (the Insurer). All elements of cover are subject to the terms and conditions stated below and can be changed with 30 days' notice. Acceptance of cover is at the discretion of the Administrator.

The Administrator is authorised by the Insurer to collect charges, to accept or decline claims, and to arrange repair or replacement under the Insurance on behalf of the Insurer, providing that the Phone and/or SIM Card stated on the Certificate of Mobile Phone Insurance are the property or responsibility of the customer stated on the Insurance Registration Form (you), or members of your family, or staff permanently employed by you.

Cover is only available if a minimum of one month's payment has been received in advance. You must ensure that all payments due and owing to Phones 4U Ltd, your airtime provider, and the Administrator have been made without deduction or set-off."

Again, it was made clear that a customer's point of contact was to be with PAS. LGI's address was given but much less prominently than had hitherto been the case.

I was told that in the course of the discussions between the customer and the P4U staff about his taking insurance cover, the customer was shown a brochure describing the "Premier Plan" insurance scheme. It is conspicuous that the brochure referred to the scheme as "Phones 4U's exclusive insurance policy" and one had to read some way into the document before discovering that the insurance was underwritten by LGI. PAS was identified as the administrator of the scheme, and it was made clear that enquiries, claims and other matters were to be addressed by customers exclusively to PAS. In the copy of the brochure with which I was provided, the terms and conditions of the policy as they were set out on the second of the two forms I have described were repeated.

A customer completing either of the forms had no immediate contact with PAS, but only with the staff at the P4U shop which he had visited. He did, however, receive a letter from PAS in a computer-generated form. There were some differences between the letters used between May and August 2002, and those used between September 2002 and January 2003, though none is significant for the purposes of this decision. Each of the letters referred to the customer's monthly payment as a single sum, and made no reference either to its being split into a premium and an administration, or service, charge, or to PAS being the administrator of a scheme underwritten by LGI. Indeed, LGI was not mentioned at all in either of the letters, and the later version stated that PAS "administers insurance on behalf of Phones 4U". I was told that customers received a further copy of the Premier Plan brochure with the letter.

It was accepted by Mr Conlon that the premium identified as such on the form completed by the customer attracted IPT and that the amount quoted to the customer—in the example I have used £5.99—included IPT. He accepted too that the administration or service charge was correspondingly "charged to the insured … in connection with a taxable insurance contract" and thus, at first sight, fell within sub-s (1A). However, he said, it came within the excepting provision of para (b) and therefore was not subject to IPT because the Appellant had satisfied the two conditions which that paragraph prescribes. They are, that there must be a separate contract pursuant to which the service charge has become due and that the payment has been so identified, in writing, as a separate amount attributable to that contract.

He laid some emphasis on the reference in the Customer Declaration to the two separate contracts, that is the insurance policy and the agreement with PAS. It was common ground that the customer entered into an insurance contract with LGI. A customer reading the declaration properly, Mr Conlon said, must be taken to be aware that he was entering into another contract with PAS (and even if he did not read it properly, or misunderstood it, he was fixed with the knowledge: see Debenhams Retail plc v Customs and Excise Commissioners [2004] STC 1132, especially at [25]). That contract was for policy administration services, as they were described on the reverse of the customer form and in the Premier Plan brochure. There was an offer, by PAS, and acceptance on the part of the customer by his signing the form, and that was enough since the test was entirely objective: Smith v Hughes (1871) LR 6 QB 597.

It would have been apparent, too, to the customer taking the trouble to consider the matter that the premium as it was identified on the customer form was the amount he was required to pay for the insurance, and that the service charge was the separate amount payable for the administration service to be rendered by PAS. This, he said, satisfied the identification requirement of s 72(1A)(b). That requirement was not to be construed unnecessarily strictly; it was sufficient that the existence of a separate charge was made clear, and a means of identifying it provided. That was apparent from Freight Transport Leasing Limited v Customs and Excise Commissioners [1991] VATTR 142, in which the tribunal was required to construe the requirement imposed by what was then para 3 of Schedule 6 to the Value Added Tax Act 1983, which exempted from VAT "The provision of the facility of instalment credit finance in a hire-purchase, conditional sale or credit sale agreement for which facility a separate charge is made and disclosed to the recipient of the supply of goods." The tribunal concluded that the disclosure of a figure of general application which would enable the customer to calculate the charge in his particular case satisfied the requirement. Similarly in C R Smith Glaziers (Dunfermline) Limited v Customs and Excise Commissioners [2003] STC 419 the House of Lords held that the statement on the taxpayer's invoices that 10 per cent of the cost was attributable to the arranging and administration of insurance was a sufficient "statement setting out every amount that the customer is … required to pay" so as to satisfy the requirements of Note (5) to Group 2 of Schedule 9 to the Value Added Tax Act 1994.

Mr Conlon drew my attention to the form of the agreement between LGI and PAS which came into effect on 1 February 2003 and which superseded the agreement of 1 November 2001. The material differences are in clauses 3 and 6. In clause 3, the final sentence has been replaced; the new sentence reads "The Administrator is authorised to agree separately with the insured an appropriate fee in respect of the services that the Administrator provides to the insured." Clause 6.1.6 has been substantially redrawn and now reads:

"procure that its agents will collect the appropriate premium, insurance premium tax (due under the Insurance Agreement) and application details from customers and promptly submit them to the Administrator without set off or deduction of any kind. All amounts charged under the Insurance Agreement are due to the Corporation. Other monies collected by the Administrator must be clearly stated in the documentation provided to the insured at the point of sale as being a separate charge, due under a separate agreement with the Administrator." (Added and substituted words emphasised).

I observe in passing that "Insurance Agreement", though apparently used as a term of art, is not defined by the agreement. In the appendix which, as before, deals with the allocation of the customer's monthly payment, the sum due to the Appellant is identified as a "service charge" of £2. It is not at all clear to me why it was thought necessary to identify in the appendix an amount which the agreement provides is to be agreed between PAS and the customer, and which is not the concern of LGI, but that is not, I think, a matter which I need to consider.

Mr Conlon argued that the revised wording of the current agreement merely reflected what had been the reality beforehand, and that it was inconsistent of the Commissioners to accept that the new wording complied with the requirements of sub-s 72(1A)(b), while arguing that the use of the former wording led to the conclusion that there was no such compliance even though there was no material difference in the procedure for handling the customer's payment: it was allocated throughout to the same purposes. The more important document was the customer form, which did show that the requirements were met during the relevant period.

The Commissioners were represented by David Gilchrist of counsel. His first point led to some disagreement between the parties about the interpretation to be placed on paragraph 12 of the statement of agreed facts. It reads:

"12 PAS supplies administration services. It charges customers who take out the Policy £2.00 per month as a service charge for doing this. The administration services supplied by PAS include:

1 arranging and finalising the contract for the Policy between LGI and the customer, on behalf of the customer;

2 sending correspondence about the Policy to the customers;

3 dealing with customer queries about the Policy;

4 handling claims made by customers against the Policy; and

5 billing customers."

Mr Conlon maintained that this amounted to an agreement, from which the Commissioners could not resile, that PAS supplied the stated services to the customers in exchange for the monthly payment of £2, and that there was correspondingly a contract between the customers and PAS. That conclusion was underlined by paragraph 16 of the statement of agreed facts: "PAS receives no consideration for acting as agent for LGI". Mr Gilchrist, however, contended that the paragraph implied no more than that the customer paid £2 per month and that PAS supplied services; there was no necessary implication of a contract between PAS and the customer and, on the contrary, the services listed in paragraph 12 were those which PAS had already contracted to supply to LGI, in accordance with clauses 3 and 6 of the agreement of 1 November 2001. There was, he said, in reality no contract between PAS and the customer; although the customer declarations referred to the customer's having read the terms and conditions of such a contract, those terms and conditions were nowhere to be found. All of the terms and conditions set out on the reverse of the form related to the insurance contract between the customer and LGI. The true analysis, he said, was that there was a single contract between the customer and LGI, the consideration for which was a single monthly payment. It was the agreement between LGI and PAS of 1 November 2001, to which the customer was not a party, and only that agreement, which imposed administration duties on PAS, in consideration for which LGI permitted PAS to retain a portion of the customer's monthly payment.

This disagreement, in my view, represents the kernel of the dispute between the parties. Mr Conlon's argument, as he said himself, depends for its success on there being a contract between PAS and the customer pursuant to which PAS undertook administration services for the customer. Though I entirely accept that PAS did carry out administration services, I am unable to accept that they were carried out for the customer. I have set out clause 6.1 of the agreement of 1 November 2001 in full above since the clause seems to me to be consistent only with the appointment of PAS as LGI's agent for purposes including (as the latter part of clause 6.1.7 makes clear) the administration of the insurance. An examination of the reverse of the customer forms shows that a large number of administrative functions is identified but I am at a loss to understand how it could be said that those functions are to be carried out on behalf of the customer. With the single exception of placing the insurance, to which I will come shortly, they are all tasks which an insurer would normally carry out himself, such as the handling of claims, receiving notices of cancellation of the policy and the like. Nowhere is it indicated, for example, that PAS will represent the customer and assist him in making a claim against LGI, by valuing his claim, corresponding with LGI on his behalf or in any similar way. Instead, the conditions include the exclusions from cover which one would expect in any insurance policy and impose various duties on the customer himself, such as the reporting of any loss to the police. Not one of those duties is to be assumed on the customer's behalf by PAS, nor is there any means by which a customer may ask, still less require, PAS to assume them.

The earlier version of the customer form provided that PAS "shall arrange" for LGI to indemnify; the later version that PAS "has arranged" cover. At first sight the former version, though perhaps not the latter, could constitute the subject matter of an agreement for which the customer's monthly payment, or at least part of it, was the consideration. Nevertheless, I am not persuaded that there was even a contract between PAS and the customer by which PAS truly arranged insurance on the customer's behalf. PAS did not (and could not) act as a conventional broker, placing insurance with the insurer which offered the most appropriate cover for the most economical premium. Its principal role was to sell insurance for the benefit of LGI (and, ultimately, its own parent company): so much is clear from clause 3 of the agreement between LGI and PAS. The customer was offered no choice, either by PAS or by its sub-agent, P4U; if he declined insurance with LGI, no other was available. The statement that PAS will arrange, or has arranged, insurance with LGI (and the implication that PAS will do so, or has done so, as his agent) is, in my view, a distortion of the truth, namely that PAS was selling insurance on behalf of LGI; the customer was no more than a purchaser. I see no proper basis upon which one can import the notion that the customer, as principal, instructed PAS to effect insurance, as his agent.

I am, therefore, satisfied, despite the assertion to the contrary in the customer declaration, that there was no contract between PAS and an individual customer and that, on this ground alone, the requirements of sub-s 72(1A)(b) are not met. I shall nevertheless deal with the remaining issues on which I heard argument.

Subsection (1A) requires that the amount attributable to a separate contract (hypothesising that there was a separate contract in this case) must be "charged" by "any person" who, by necessary implication, is not an insurer. Mr Conlon contended that the separate identification of the premium and the service charge was sufficient; Mr Gilchrist's argument was that, notwithstanding the separate mention of the two elements, the entire monthly payment was due to LGI, which paid to PAS £2 of the monthly total as the consideration for PAS' carrying out its obligations under the agreement of 1 November 2001.

In principle, I see the force of Mr Conlon's argument, based upon the conclusions in Freight Transport Leasing Limited and C R Smith Glaziers (Dunfermline) Limited, that the requirement that the separate amount be identified means no more than that the customer must be able to determine for himself what it is. Potentially, therefore, the indication on the front of the customer form that the customer's monthly payment consists of a premium and a service charge is capable of satisfying the requirement. The difficulty for the Appellant lies in the wording on the reverse of the form. In the earlier version the "monthly payment stated … overleaf" was described as the consideration for PAS' arranging the insurance. As in much of the Appellant's documentation, the drafting was poor, since there was no statement of a "monthly payment" on the front of the form; the expression used was "monthly cost". Nevertheless, I am satisfied that the customer would realise that the "monthly payment" and the "monthly cost" were the same. It follows that there was no identification of a separate amount charged for a separate contract; on the contrary, the reverse of the form referred to a single charge for a single service. At best there was a breakdown, into two elements, of that single charge. In the later version, there was no indication at all that the "monthly cost" was the consideration for any particular service and one was left to rely on inference. The inference that the monthly cost was the consideration for the insurance is obvious; but the inference that the premium was the consideration for some identifiable parts of what was provided for on the reverse, while the service charge was the consideration for the remainder is, in my view, very far from obvious.

I am in any event persuaded that Mr Gilchrist is right and that the contractual arrangements must lead to the conclusion that the entirety of the customer's payment was due to LGI, which allowed PAS to retain a part of it—initially £1.91, and latterly £2—as the consideration for the services rendered by PAS to LGI. I have reached that conclusion with some hesitation, because of paragraph 16 of the statement of agreed facts, which reads: "PAS receives no consideration for acting as agent for LGI", a statement which seems to me to be contrary to all the evidence.

The reverse of the earlier customer form was silent about the Appellant's formal role, although the brochure to which I have referred stated that PAS was "responsible for collecting your monthly payment". (I add parenthetically that the brochure, too, made no attempt to identify the elements of the monthly payment with different parts of what the customer received). In my view that statement can suggest only that PAS was collecting the payment on behalf of the insurer. The later version of the customer form was explicit: PAS "is authorised by the insurer to collect charges …". That statement must lead to the same conclusion, that PAS was collecting the whole payment on behalf of the insurer. Its having done so is consistent with its performance of the obligation imposed on it by the final sentence of clause 3 of the agreement of 1 November 2001: "In consideration of the Administrator performing its obligations under this Agreement, the Corporation shall pay to the Administrator in respect of each Insurance policy the Administration Fee and Commission at the rates set out in Appendix 1." It is clear from the structure of the tables set out in Appendix 1 that the "Administration Fee and Commission" were to be paid to PAS out of the customer's monthly payment. Consistently with that arrangement, clause 8 of the agreement required PAS to collect "premiums"; the "Administration Fee and Commission" were to be retained from the amount so collected. It follows that the total monthly payment must be collected from the customer on behalf of LGI; it is quite impossible to interpret the agreement in a manner which is consistent with the proposition that the service charge was separately collected from the customer by PAS quite independently of its obligations to PAS. Clause 8(2) of the agreement reinforces that conclusion: everything PAS received was to be held on trust for LGI. I am satisfied that no part of the customer's payment fell within sub-s 72(1A)(b). The combined effect of sub-ss (1), (7) and (8) of s 72 is that, even though the service charge element of the customer's payment did not in fact reach LGI, it is to be treated as having been received by PAS on behalf of LGI, and is taxable.

For the reasons I have given, the appeal is dismissed. There will be no direction in respect of costs.

COLIN BISHOPP

CHAIRMAN

Release Date: 9 November 2004

MAN/03/9000