Ford Motor Company Ltd v Revenue & Customs

The appellant, Ford Motor Company Ltd (“Ford”), is the well-known manufacturer of cars. Within the United Kingdom it maintains a network of largely independent dealers through whom it sells its cars to the public. An associated company, Ford Credit, provides hire purchase and other finance to a purchaser of a Ford car who wants it. The customer buys the Ford of his choice from the dealer or Ford Credit as the case may be. From time to time Ford promotes the sales of its cars by offering, through the dealers, special deals or arrangements to buyers of specified models. The promotions with which this appeal is concerned consisted of offers of free insurance and free RAC breakdown service to buyers of particular Ford models in the period April 1994 to July 2005. Neither party suggests that the two services should be distinguished. Thus, in general, it is sufficient to consider the issues in relation to the promotion involving free insurance.

The broad outline of that promotion involved the publication by Ford of the availability of free insurance in respect of particular models purchased through one of its dealers. On approaching a dealer a prospective buyer of a relevant model was provided with a customer information sheet indicating the nature of the insurance available. If the prospective buyer wished to avail himself of the offer he, or the dealer on his behalf, completed a form with details of the buyer and of the car relevant to the offer of free insurance. This was done at the same time as completion of the order form for the purchase of the car. The details on the former were passed on to the relevant underwriter, Guardian Direct or Norwich Union, by the dealer and the relevant cover-note was available on taking delivery of the car. The buyer paid the dealer or Ford Credit for the car on the basis of an invoice which made no reference to insurance. The insurance documents provided to him on delivery of the car stated that the insurance premium was “£0.00”. The premium (together with the related insurance premium tax) received by the insurance company was paid by Ford.

In the period to which I have referred Ford accounted for VAT output tax in respect of the relevant cars, supplied by it to the dealer, on the invoiced price without any deduction referable to the cost to Ford of the related insurance. In due course Ford claimed that it had paid more output tax than that for which it was properly liable and sought repayment of sums, in aggregate, in excess of £10m. It claimed that some part of the price of the car paid by the buyer was for the insurance and that the transaction as a whole should be treated by Ford as giving rise to two supplies, namely (1) a standard rated supply of the car and (2) an exempt supply of the insurance. This contention was rejected by the respondent (“HMRC”) and, on appeal by Ford, by both the Tribunal (Rodney P Huggins Esq and Mrs J.M.Neill) and Sir Donald Rattee, sitting as an additional High Court judge of the Chancery Division. This, second, appeal of Ford is brought with the permission of Moses LJ.

Before the Tribunal and the Judge there were basically three issues, namely:

All three issues were argued before us. In addition Ford contends that certain facts, not expressly referred to by the Tribunal, must be treated as having been found or, if necessary, require a remission to the Tribunal. Further there was some dispute as to the order in which it is logical and convenient to consider the issues which do arise. To explain all these matters, the arguments before us and my conclusions it is necessary first to set out the relevant legislation and then to explain the facts found by the Tribunal and the conclusions of both the Tribunal and the Judge.

At the material time VAT was imposed on the supply of goods and services in the UK by the Sixth Directive (77/388/EEC) and VAT Act 1994. As is well known the first is of direct effect as well as implemented by the second. It is not suggested in this case that VAT Act 1994 conferred rights or imposed obligations in excess of those imposed or permitted by the Sixth Directive so, for the most part, it is sufficient to refer only to the relevant provisions of the Sixth Directive.

They are the following:

(1)

Article 2:

“The following shall be subject to value added tax :

1.

the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such …”

(2)

Article 11A.1:

“the taxable amount shall be (a) in respect of goods or services … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or the third party for such supplies …”

[and shall include as set out in Article 11A.2]

“(a)

taxes, duties, levies and charges, excluding the value added tax itself.”

(3)

Article 11A.3:

“the taxable amount shall not include

(a)

price reductions by way of discount for early payment;

(b)

price discounts and rebates allowed to the customer and accounted for at the time of supply;

(c)

the amount received by a taxable person from his purchaser or customer as repayment for expenses paid in the name and for the account of the latter and which are entered in his books in a suspense account. The taxable person … may not deduct any tax which may have been charged on those transactions”.

(4)

Article 13B(a):

“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(a)

insurance and reinsurances transactions, including related services performed by insurance brokers and insurance agents”.

The exemptions allowed by Article 13B(a) are contained in s.31(1) and Group 2 Item 4 contained in Schedule 9 to the VAT Act 1994. S. 31 provides:

“(1)

a supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9...”

Schedule 9 Group 2 Item 4 has been amended from time to time. It is not suggested that in any of its forms it conferred an exemption in excess of what Article 13B(a) permitted. Accordingly it is not necessary to consider their terms.

The facts as found by the Tribunal are set out in paragraphs 10 to 42 of their decision. Paragraphs 10 to 12 contain an introduction, the material parts of which I have already described in paragraphs 1 and 2 above. Paragraphs 13 to 16 describe the arrangements made before October 1998 with Guardian Direct Services Ltd. The Tribunal recorded:

“14.

The main agreement was between Ford and Guardian Direct Services Limited who traded as RAC Insurance Services. The cover was comprehensive for one year, the cost of which was paid by Ford. The cover was restricted to the policy holder and up to five other named drivers aged 17 to 80. There was no refund of premium if the policy was terminated before the renewal date. Each customer had to complete and sign what was described as “the free insurance application form”. All advertising material referred to “Free insurance”.

15.

The customers had to acquire the vehicle, register it and then take out the policy. Ford paid all the premiums. The purchasers filled in the Declaration forms which were faxed either to RAC Insurance Services or the Ford Insurance Centre.

16.

Only specific models carried free insurance. In the period from 1 June to 25 September 1998 free insurance was available for Ka, Fiesta and Escort models. The other feature of this early arrangement before October 1998 was that only fixed premiums were charged by Guardian Direct to Ford. This was a basic estimate and did not reflect the risk element depending on the volume of sales.”

Paragraphs 17 to 22 dealt with the similar arrangements made with Norwich Union under an agreement dated 20th October 1998 with effect from 26th September 1998. Paragraphs 18 to 20 contain details of the agreement between Ford and Norwich Union. Paragraphs 21 and 22 set out the facts relating to the free insurance offered as part of the promotional schemes. They record:

“21.

The Binding Authority of 7 January 1999 between Norwich Union and Ford related exclusively to free insurance. It took effect from September 1998. It authorised Ford, which term included sub-agents, to bind Norwich Union to free insurance policies “in the form attached to this Binding Authority” meeting certain eligibility criteria such as the models of Ford motor cars, the ages of the drivers (17–80) and the driving records (including convictions) of insurants and drivers. Other relevant provisions were:

* Clause 2.3 which directed that on cancellation of a free insurance policy no part of the premium was refundable, and

* Paragraph 3.2 of Appendix 1 which enabled the insured to transfer the benefit of free insurance to another Ford model during the period of the free insurance policy, but the insured who cancelled his free insurance was entitled to no refund.

22.

There were certain other features relating to individual car purchases under the 1998 Agreement. Amongst those were the following :

* drivers could include four additional persons

* customers were enabled to qualify for maximum no claims discount in later years

* purchasers were required to read an information sheet and fill in a declaration form.

* a three day turn around for the policy to be issued was expected.

* customers had to acquire their vehicles, register them and then take out the insurance.

* in Schedule II to the 1998 Agreement under the heading “Financial Agreement – Motor Insurance - Free Insurance” there was an illustrative example which included the phrases “Premium payable by the Customer = 100” and “Premium Payable to Norwich Union = 100”.

* the insurance premiums were calculated on an average basis per unit [there was no change in this regard until later.]”

In paragraphs 23 and 24 the Tribunal described the paperwork involved in a single transaction in the following terms:

“23.

We were provided with an example of a customer pack (customer order form, dealer invoice, policy document, certificate of motor insurance). We were also supplied with samples of customer documentation. The sample policies supplied to individual customers made it quite clear that no annual premium had been paid by the individuals and the cover was described as “Free Comprehensive”. Letters were sent to customers by the Head of Customer Management of Ford Insure enclosing the initial cover note and stated “your annual free insurance policy begins from the day your vehicle is registered and will be shown on your schedule.”

24.

The two specimen invoices from car dealers to customers supplied to the tribunal for the purchase of a Ka model on 9 December 1999 and a Fiesta car on 20 December 1999 did not mention an initial one year’s free insurance cover although the latter did refer to 24 months extra cover without mentioning a figure.”

In paragraphs 25 to 29 the Tribunal set out various changes in the terms of the insurance policy and the administration of the promotion programmes after 1998. In paragraph 26 the Tribunal recorded that “Ford continued to pay all the premiums”. In paragraph 29 the Tribunal found:

“29.

From the year 2000 to 2005 whilst the price of any vehicle in the model range within the free insurance offer fluctuated due to market pressure, at the time that the free insurance element was added to the purchase price of the car any other offers (such as cash back) were reduced. Therefore the price the customer paid for a vehicle increased.”

In paragraphs 30 to 33 the Tribunal described the free breakdown cover provided by RAC. They found:

“32.

Ford paid RAC varying amounts on purchase of new vehicles depending upon the model and other circumstances. The basic amount in 2003 for a new car was £8.60.

33.

Customers did not pay separately for this breakdown cover. It was included in the invoice price of the cars.”

In paragraphs 34 to 42 the Tribunal recorded the procedure by which the issues before them had arisen.

At the hearing before the Tribunal counsel for Ford put in a paper entitled “Key points on the Evidence”. This set out in 88 numbered paragraphs what Ford contended were the key points. In Appendix B to his skeleton argument on appeal to the High Court counsel for Ford identified by reference to that paper a number of points he contended should have been, but were not, addressed in the Tribunal’s decision. Before us the number was reduced to four, namely, points 81 to 84 (both inclusive). These points may be summarised as the attractiveness of free insurance to young drivers, the fact that the cost of free insurance is passed on by Ford to its customers, the fact that customers of Ford would realise that the cost was so passed on and that the cost of the free insurance, which is diminishing in attraction, represents 14% of all promotional offers made by Ford. I did not understand any of these points to have been disputed by counsel for HMRC; rather he was concerned to limit the inferences which might be drawn from them. It seems to me that they add nothing to the points we have to decide. The first three appear to me to be obvious and the fourth irrelevant to any question we have to decide. There is, in my view, no warrant for any reference back to the Tribunal.

The Tribunal summarised the first issue before them (paragraph 50) as raising the question “was something done for a consideration in addition to the basic cost of the car?”. They summarised the arguments of counsel before them in paragraphs 51 to 57. In paragraph 58 they considered that a distinction was to be drawn between the transactions effected before and after 23rd January 2004. The Tribunal concluded (paragraphs 64 and 65):

“64.

Applying these principles, we decide that up until 23 January 2004 as purchasers could not know what the free insurance involved it would therefore be reasonable for them to assume that the insurance element was indeed free. After the above date, the purchasers became aware there was an insurance element because of the enquiries that were made with them direct before the cover notes were issued. Therefore, the insurance element in the transaction became a separate consideration because the purchasers of the cars became aware that the price being paid was in reality apportioned over the cars as a whole applying Blackburne J’s guidance.

65.

For the same reason, we also find that the free RAC cover element in car sales did not form a separate consideration. Individual purchasers could not know what was involved and would believe the breakdown cover was indeed free and included in the overall price.”

It was common ground in both the High Court and this court that the distinction the Tribunal sought to draw with regard to events before and after 23rd January 2004 was without a relevant difference.

The question the Tribunal posed for themselves on the second issue was “Is the insurance related supply exempt in VAT terms or not?” The Tribunal considered in the case of transactions after 23rd January 2004, but not those before, a separate consideration was paid for the insurance element. Having considered the rival arguments and various authorities to which they had been referred the Tribunal concluded (paragraphs 73 and 74):

“73....Ford although not itself an insurer was able to procure the additional insurance cover for its customers by making use of the open offer by Norwich Union to provide cover to Ford’s customers meeting the eligibility criteria. We form the view that these supplies were within the wider meaning of “insurance transactions” for the purposes of Article 13B(a) of the Sixth Directive. Effectively, as we have found Ford were “introducers” as far as the insurance transactions between Norwich Union and Ford’s customers were concerned.

74.

Therefore, we are of the opinion that Ford does supply insurance related services within Group 2 as interpreted in light of the proper meaning of Article 13B(a)....”

The Tribunal summarised the third issue in the form of the question “Is what would otherwise be an exempt supply subsumed into a standard rated supply?” They repeated the distinction they had drawn regarding transactions before and after 23rd January 2004. They distinguished the judgment of Blackburne J in Peugeot and Citroen v HM Commissioners for Customs and Excise [2003] STC 1438 and concluded (paragraphs 88 and 89):

“88.

Applying the principles laid down in paragraphs 28 to 31 of the Card Protection Plan judgment we have had regard to “all the circumstances” in which the transactions between Ford and its customers took place; the “essential features of the transaction must be ascertained”, looking at the supplies made by the taxable person to a “typical customer”. Finally, that which comprises a “single service from an economic point of view must not be artificially split”.

89.

We therefore agree with [counsel for HMRC] that the supply of free insurance to customers cannot be in the circumstances of this case separate and distinct from the supply of the Ford cars. Since January 2004, the insurance exempt supply is subsumed into the standard rated supply for the reasons given.”

Sir Donald set out the facts and the decision of the Tribunal (paragraphs 1 to 26) and then proceeded to consider the first question. This he formulated as

“Was the provision by Ford...to a purchaser of a car of insurance and RAC benefits for a consideration consisting of part of the price paid by the purchaser ostensibly for the car and, therefore, itself a supply for VAT purposes?”

Sir Donald then considered the decision of the European Court of Justice in Kuwait Petroleum GB v HM Commissioners for Customs & Excise [1999] STC 488 (“Kuwait Petroleum”) and of Laddie J [2001] STC 62 applying the answer to the reference. He recorded the submission of counsel for Ford and concluded in paragraphs 38 to 40:

“38.

I do not accept [counsel for Ford]'s submission. In my judgment, the relevant question posed by the European Court of Justice in the Kuwait case is whether, at the time of the relevant sale by Ford Credit to a customer, or Ford to a dealer, the customer or dealer and Ford or Ford Credit had agreed expressly or impliedly that part of the price paid for the car, whether identifiable or not, would constitute value given in return for the insurance and RAC benefits. The question is not, in my judgment, what the customer or dealer did or did not himself reasonably believe was the value of the benefits he was receiving. As in the Kuwait case, so in this case, there is nothing in the facts found to suggest any such agreement. Indeed the documentary evidence is all to the contrary effect, namely that the insurance and RAC benefits were being provided by Ford or Ford Credit free of charge to the purchaser. The purchaser was told repeatedly by Ford and Ford Credit that the benefits were free to the purchaser. The price charged for the car did not vary depending upon whether the purchaser took up the offer of insurance or RAC membership and the invoice issued to the purchaser showed the full price as being paid for the car alone. Ford in fact did everything it could to represent the deal as one in which no part of the price paid by the purchaser represented a price paid for the insurance.

39.

That being so, Ford cannot now reasonably maintain that contrary to all those representations it made there was in fact an agreement between it and the purchaser that part of the price shown in the invoice issued to the purchaser as paid for the car was in fact not paid for the car but was paid for the insurance and RAC benefits (compare paragraph 31 of the judgment of the European Court of Justice in Kuwait [1999] STC 488 at page 509).

40.

In my judgment, there is no justification for the Tribunal's answering issue 1 differently in relation to sales up to and including 23^rd January 2004 on the one hand, and sales after that date on the other. For the reasons I have endeavoured to give, it should have decided that in none of the sales concerned was any part of the price paid, paid as consideration for insurance and RAC membership.”

In those circumstances the second and third questions did not arise. Sir Donald dismissed the appeal without considering them further.

As will have been seen, in both the hearings below the issues were heard in the order I have set them out in paragraph 4 above. Before us counsel for Ford suggested that the logical order, and that indicated by the decision of the European Court of Justice in Card Protection Plan v HM Commissioners for Customs & Excise [1999] STC270 (“Card Protection Plan”), is that the issue relating to the insurance exemption should be determined first. Counsel for HMRC disagreed. He pointed out that though ECJ in its judgment in Card Protection Plan [13] did suggest that the insurance exemption point “should be considered first” that was said in the context of a case in which there were plainly two supplies but only one price. The first issue in this case, he suggests, is whether there was one supply or two. Further if the first and third points are decided against Ford the issue of the insurance exemption does not arise.

The argument of counsel for Ford suggested that there is a subtle distinction between the Sixth Directive and the VAT Act 1994 which seldom matters but in this case might. He pointed out that Article 2 of the Sixth Directive subjects to VAT “the supply of goods or services effected for consideration”. He submitted that it was thereby indicated that “consideration” was not an essential element in a “supply” though without it the supply could not, in general, be taxable. The equivalent provisions in VAT Act 1994 are ss.1 and 5(2) VAT Act 1994. They provide:

“1(1) Value added tax shall be charged, in accordance with the provisions of this Act –

(a)

on the supply of goods or services in the United Kingdom (including anything treated as such a supply),”

.....

“(2)

Subject to any provision made by that Schedule and to Treasury orders under subsections (3) to (6) below—

(a)

“supply” in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

(b)

anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”

Counsel for Ford pointed out that the provisions of Article 2 had been split between sections 1(1) and 5(2). In his written argument he accepted that such a structural discrepancy is of no significance and that the VAT Act must be interpreted in the light of the Sixth Directive:

“However, where (as in the present case) there is a dispute about whether or not elements of a transaction are distinct and whether each element has been effected for consideration, the previous formulation of the issues in this case, following the structure of the 1994 Act and the approach of Blackburne, J. in Peugeot, increases the risk that the relevant principles formulated by the Court of Justice may be misapplied.”

I do not think that the perceived risk is any reason to consider the availability of the insurance exemption first. That can only be determined after the relevant supply has been ascertained. But the submission does highlight the fact that the first and third issues are different aspects of the essential issue for the purposes of both the Sixth Directive and the VAT Act 1994 namely the existence of a ‘supply of insurance services for a consideration’. This issue can be broken down into the two sub-issues of ‘supply’ and ‘consideration’ but each may throw light on the other. Accordingly I propose to consider the first and third issues as part of the overall issue of whether there was any supply of insurance services for a consideration. Only if the answer to that question is in the affirmative will the availability of the insurance exemption arise.

Before summarising and considering the submissions for the parties it is necessary to deal with various authorities relevant to one or other aspect of this question. The two principal authorities are the decisions of the ECJ in Card Protection Plan and Kuwait Petroleum. The first dealt with the issue of ‘supply’ and the second with the question of ‘consideration’.

In Card Protection Plan CPP offered the holders of credit cards protection against the financial consequence or inconvenience occasioned by the loss or theft of their cards and other items. This protection was obtained by CPP through an insurance broker effecting insurance cover with an insurance company under which the customers of CPP were specified as the insured and the protection afforded was the same as that promised by CPP to its customers. The premium for the insurance cover was paid by CPP and CPP charged its customers one sum for all its services. The Commissioners recognised that the insurance company supplied insurance services to the customers of CPP but denied that CPP did so as well. They contended that the services supplied to its customers by CPP were not exempt and required them to account for output tax at the standard rate on the consideration paid to CPP by its customers. CPP appealed. The Tribunal upheld the views of the Commissioners. Popplewell J allowed the appeal of CPP on the basis that there were two separate supplies, one of insurance and the other of the remaining services. The Court of Appeal dismissed the appeal of CPP and allowed that of the Commissioners. In these circumstances the House of Lords stayed the proceedings and referred a number of questions to the ECJ. Questions 1 and 2 sought to resolve the issue whether CPP made one composite supply or two or more independent supplies.

The response of the ECJ to those questions is contained in paragraphs 26 to 32 of the judgment of the Court. In paragraph 27 ECJ emphasised the importance of the questions and the impossibility of giving exhaustive guidance given the diversity of commercial operations. In paragraph 28 ECJ emphasised the need to have regard to all the circumstances in which the transaction took place. The judgment continued:

“29.

In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

30.

There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied: Customs and Excise Commissioners v. Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97)  [1998] S.T.C. 1189, 1206, para. 24.

31.

In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances such as those described in paragraphs 7 to 10 above indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used for this: see, to that effect, Madgett and Baldwin,  at p. 1208, paras. 45 and 46.

32.

The answer to the first two questions must therefore be that it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed by C.P.P. are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply.”

In Kuwait Petroleum the sale of fuel was promoted by the oil company issuing vouchers to the buyers pro rata to the amount of fuel bought. When sufficient vouchers had been accumulated they might be exchanged for goods listed in a catalogue. The oil company which had deducted input VAT on these goods when acquired was assessed to output tax on their supply to the buyers of fuel when redeeming their vouchers. The charge to VAT depended on the application of Articles 2(1) or 5(6) of the Sixth Directive and the equivalent provisions in VAT Act. Article 5(6), which might apply if Article 2(1) did not, required goods forming part of the business assets of a taxable person and disposed of free of charge or for purposes other than those of the business to “be treated as supplies made for a consideration”. The oil company appealed to the Tribunal. The Tribunal referred five questions to ECJ. The second and third were:

“2.

Are the redemption goods to be treated as “supplies made for consideration” for the purposes of art.5(6) of [the Sixth] Directive?

3.

If the redemption goods are provided otherwise than for consideration or “free of charge”, is art.5(6) to be interpreted as requiring the provision of the redemption goods be treated as a supply for consideration notwithstanding that such provision is for business purposes?”

ECJ answered questions 2, 3 and 4 together. The paragraphs of immediate relevance are paragraphs 26 to 28 in which the Court considered the application of article 2(1) in the following terms:

“26.

Goods are supplied 'for consideration' within the meaning of article 2(1), of the Sixth Directive only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied (see, to that effect, concerning the supply of services, Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) [1994] STC 509 at 516, [1994] ECR I-743 at 759 paragraph 14).

27.

It is for the national court to inquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed - through the dealers, as the case may be - that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers or the redemption goods. There is nothing, however, in the documents before the court to suggest that there was in fact any such reciprocal performance by the parties concerned.

28.

As the Advocate General pointed out in para 43 of his opinion, the sale of the fuel and the exchange of goods for vouchers are two separate transactions.”

This principle was applied by Laddie J on the appeal of Kuwait Petroleum from the subsequent decision of the Tribunal ([2001] STC 62 para 23) when he addressed the question whether at the time of buying the fuel the customers and Kuwait agreed directly or indirectly that part of the price for the fuel, whether identifiable or not, would constitute the value given in return for the goods supplied on redemption of the vouchers. On the facts of that case he concluded that they had not.

Either or both of these principles have been applied in a number of later decisions to which we were referred of both ECJ and the national courts in England. Thus in HM Commissioners for Customs & Excise v Primback Ltd [2001] STC 803 ECJ considered a reference concerning sales by a furniture retailer to a buyer effected either directly or, at the option of the buyer, through a finance house. In either event the buyer paid the full invoice price but in the latter case the retailer received the invoice price less a percentage commission. The retailer contended that it was only accountable for output tax on the invoice price net of the commission. This contention was rejected by ECJ. The Court concluded [42-45]:

“42.

It follows that, in the present case, the price agreed between the parties to the contract of sale and paid by the consumer was the same, irrespective of the means by which the purchase of the goods was financed, with the result that Primback cannot reasonably argue that the price advertised in fact contained a component representing the value of the credit (see, by way of analogy, Case C-48/97 Kuwait Petroleum [1999] ECR I-2323, paragraph 31).

43.

It follows that, from the point of view of the final consumer, the transaction which, in this case, he concludes with Primback is to be seen as a single transaction consisting in the sale of goods, by reason of the fact that the retailer supplies goods to his customers in return for payment of a single price advertised by the seller, invoiced to the purchaser and payable by him, but also offers at the same time the possibility of credit described as credit free of interest or other costs to the consumer. That being so, the credit which Primback claims to have afforded the customer cannot be regarded as a transaction effected for consideration within the meaning of Article 2 of the Sixth Directive.

44.

With regard to the transaction concluded between Primback and the final consumer, which alone is relevant in the main proceedings, it should be added that, even if it were possible to distinguish the supply of services, allegedly consisting in the supply of credit, from the supply of goods, the former supply would, in circumstances such as those in issue in the main proceedings, have to be construed as being in any event ancillary to the principal transaction consisting of the sale of goods.

45.

Indeed, it follows from the Court's case-law that, where a transaction consists of several elements, there is a single supply, particularly where one element is to be regarded as constituting the principal service, whilst another is to be regarded as an ancillary service sharing the tax treatment of the principal service; and a service is to be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see, in this sense, Case C-349/96 Card Protection Plan [1999] ECR I-973, paragraph 30).

Similarly in Hartwell plc v Commissioners for Customs & Excise [2003] STC 396 a car dealer gave to buyers of second hand cars three vouchers each of which entitled the buyer to a free MoT test. They had an aggregate face value of £96.33. The dealer contended that the face value of the vouchers should be deducted from the consideration for the supply of the car so that his liability to account for output tax would be limited to the net amount. Chadwick LJ considered [33-35] that there was a single supply of the second hand car and the vouchers and no separable consideration for the vouchers. Arden LJ agreed in the result [42-44] but on the basis that the supply of the vouchers was ancillary and so subsumed in the supply of the car. Ward LJ considered [51] that the Card Protection Plan principle was confined to cases where the VAT treatment of the two supplies was different but that the application of the principle in Kuwait Petroleum showed [56-58] that the vouchers were not supplied for a consideration.

In Peugeot Motor Co plc v HM Commissioners for Customs & Excise [2003] STC 1438 Blackburne J considered promotional sales very similar to those in this case. He considered [95] that the findings of the Tribunal did not enable him to decide whether any part of the consideration was referable to the insurance supply. He decided [106] that:

“Subject to one matter, there is nothing to suggest that, when Peugeot/Citroen sold cars (whether to end-users direct or to independent dealers and finance houses in other cases), insurance was dealt with as a wholly separate and distinct matter. The insurance 'promise' was clearly part and parcel of the overall sale transaction. In my view it is reasonably obvious, first, that a single supply was involved and, second, that the insurance element of the supply (ie the provision of the promise to procure insurance for the end-user at no further cost to him) was ancillary to the supply of the car. It is wholly unreal to suppose in the context of this transaction that the insurance promise could have a real existence independent of the supply of the car or, to use the words of the ECJ in Card Protection, was 'an aim in itself rather than "a means of better enjoying the principal service supplied", namely the supply of the new car. (I should add that the principle in Card Protection applies as much to the supply of goods as to the supply of services -- see Hartwell at paragraph 30 -- and, I would add, to a mixed supply of both goods and services.)”

In Dr Benyon & Partners v Commissioners for Customs & Excise [2005] STC 55 the House of Lords was concerned with the VAT treatment of the supply of drugs by, for example, injection. Did the Doctor make a single supply of medical services to which the supply of the drug was ancillary or was the administration of the drugs a separate supply of goods? The Court of Appeal adopted the latter, the House of Lords the former. Lord Hoffmann, with whom the other members of the Appellate Committee agreed, repeated the warning of ECJ in Card Protection Plan [31] against “the artificial dissection of the transaction”.

The approach of counsel for Ford was to consider first whether the supply of insurance services, which he assumed, was exempt, if so, second, whether that supply was ancillary to and subsumed in the supply of the car, and, if not, third, what consideration should be attributed to it as a separate supply. I do not think that is the correct way to resolve the issues before us. First, it leads to an assumption, implicit at least, that there are two supplies one of the car and the other of insurance services. Second, it treats the various tests indicated in the authorities as separate from each other. But, to my mind, the authorities show that it is unsafe to treat the principles of Card Protection Plan and Kuwait as being mutually exclusive. They overlap. Accordingly in seeking to answer the question I posed in paragraph 24 above it is necessary to apply each of them.

The features of the transaction on which counsel for Ford relied may be summarised as follows:

Counsel for Ford submits that the consideration for the supply of insurance services may be identified, notwithstanding that there is no separate price agreed expressly or by implication. He relies on Card Protection Plan para 31 for the proposition that, absent any such agreement, the simplest method of calculation or assessment should be used. He contends that that method is to identify from the premiums paid by Ford to the insurers the cost of the insurance in respect of individual sales of Fords with ‘free’ insurance. The result for which he contends is that there is a separate supply of insurance for a consideration.

These submissions are challenged by Counsel for HMRC. He contends that if no consideration can be attributed to the insurance services in accordance with the principle of Kuwait Petroleum then there can be no relevant supply. He suggests that on the facts of this case, as found by the Tribunal, it is plain that no consideration can be attributed to insurance services. Accordingly, he contends, there can be no separate, taxable or exempt, supply of insurance services. He seeks to resolve what might be considered to be a conflict between Card Protection Plan para 31 and Kuwait Petroleum para 27 by suggesting that the former expresses the principles to be applied in determining whether there is one supply or two but the latter contains the test for what is the consideration for each of the supplies.

In my view it is necessary to consider this issue in stages. The benefit of ‘free’ insurance was provided by Ford to the buyer of the relevant model if he wished to avail himself of it. Similarly the dealer, who I identify as Ford because neither party suggested that there is any distinction to be drawn between them, provided the buyer with the car. The one was a ‘service’, the other ‘goods’. In one sense each was supplied by Ford to the buyer. Accordingly it may be thought that the transaction as a whole involved two supplies, as, in one sense, it did. But the judgment of ECJ in Card Protection Plan shows, particularly paragraph 30, that there is still only a single supply for the purposes of Article 2.1 if either element is ancillary to or subsumed in the other.

Thus the issue of one supply or two involves a consideration of whether the potentially ancillary element, that is the ‘free’ insurance, “constitute[s] for customers an aim in itself or a means of better enjoying the principal service supplied”. It is just conceivable that some rich young tearaway would buy a Ford in order to get insurance entitling him to drive on a public road, but for the typical customer in the generality of cases the acquisition of ‘free’ insurance was not an aim in itself but a means of enjoying the car. Presumably in such a case it would be a better means of enjoying the car because, being ‘free’, it would be less costly to the buyer for that year. On this basis there could be no separate supply of insurance services.

This conclusion is consistent with that of Blackburne J in Peugeot para 26 and the same as that of the Tribunal para 88 in this case. Counsel for Ford submits that the decision of Blackburne J is distinguishable on the facts of the case and the decision of the Tribunal is open to challenge on the ground that the Tribunal did not fully apply the principles of Card Protection Plan.

The suggested distinction from Peugeot lies in the ambit of the insurance cover. Counsel for Ford submits by reference to Peugeot paras 32 and 55 that there were no specific findings as to the extent of the insurance cover. So, he submits, the conclusion of Blackburne J cannot be transported to this case where there are. I accept, of course, that this case must be determined on its own facts. That is what I have sought to do. Whether or not that conclusion is consistent with that of Blackburne J in Peugeot is not determinative either way.

Counsel for Ford criticised the decision of the Tribunal on this point on the ground that in paragraph 88 of their decision they failed to have regard to, at least, two of the six propositions established in Card Protection Plan. It is said that they failed to pay sufficient regard to the propositions that every service must normally be regarded as distinct and independent (para 29) and the fact that a single price is charged is not decisive, regard must be had to the customer’s intention (para 31).

In my view this submission does not do justice to the Tribunal. In paragraph 77 they correctly directed themselves as to the six propositions to be derived from Card Protection Plan, as summarised by the Tribunal in Lindsay Cars v HM Commissioners for Customs & Excise [2005] V & DR 21. Further in paragraph 88 of their decision in this case the Tribunal expressly referred to all the principles in the material paragraphs in Card Protection Plan. I see no reason to assume, as counsel for Ford would have us do, that notwithstanding all these references the Tribunal in fact applied only those two expressly referred to.

Accordingly the criticisms of counsel for Ford of the conclusions of Blackburne J in Peugeot and of the Tribunal in this case do not lead me to reconsider my conclusion on the facts of this case as expressed in paragraphs 39 and 40 above.

It is also necessary to test that conclusion by reference to the Kuwait Petroleum principle. Let it be assumed that the supply of insurance is not ancillary to or subsumed in the supply of the car but a free standing supply of services. To be taxable, subject to the issue of the insurance exemption, it must be for a consideration identified in accordance with the Kuwait Petroleum test. But it is clear beyond doubt that there was no consideration for the insurance expressly or impliedly agreed between Ford or the dealer on the one hand and the buyer of the Ford on the other. It was marketed by Ford as ‘free’. Their own statements were wholly inconsistent with an agreed, whether expressly or impliedly, consideration for the benefit of the insurance. I agree with the conclusions of Sir Donald Rattee on this point as set out in paragraphs 38 to 40 of his judgment.

For these reasons I would answer the question I posed in paragraph 24 above in the negative on the twin grounds that there was no separate supply of insurance services and no consideration attributable to any such supply. Accordingly I conclude that the Tribunal was right on the first ground and the judge on the second. I would dismiss this appeal. In these circumstances it is unnecessary for me to consider whether any such supply would be exempt but I agree with what Rix LJ says on the subject.

I agree. I add some observations about the second issue identified in paragraph 4 above, namely whether any supply relating to the insurance would have been exempt if otherwise potentially taxable as a separate supply neither ancillary to nor subsumed in the standard rated supply of the car. As the Chancellor, Sir Andrew Morritt, has shown, it is unnecessary to decide this issue, and therefore my observations are intended to be obiter only. However, since this issue also was fully argued before us and the judge did not deal with it, it may be appropriate, should this matter go further, to say something about it.

I restate for convenience the exemption provision contained in article 13B(a) of the Sixth Directive (see paragraphs 7 and 8 above):

“(a)

insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents.”

It will be recalled that the Tribunal, which considered this issue only as it related to the situation after 23 January 2004, agreed with Ford that the separate supply of insurance after that date was exempt: see paragraph 16 above. This was on the ground that Ford were “introducers” of insurance within the wider meaning of “insurance transactions”. It is not entirely clear from the Tribunal’s decision whether or not it regarded the relevant insurance as being “related services performed by insurance brokers and insurance agents”: Ford’s submission, which was preferred, was simply recorded (at para 70) to the effect that Ford “supplied insurance to its customers or, at the very least, supplied insurance related services”. Sir Donald Rattee did not deal with this issue at all. It is common ground that no distinction is to be made between the situation before or after 23 January 2004, nor between the RAC breakdown cover and the motor insurance provided first by Guardian Direct and subsequently by Norwich Union.

This issue has really been driven by the submissions made by Mr Anderson on behalf of HMRC. The essence of those submissions is that the transactions in question involved neither the provision of insurance cover by Ford itself, since the cover was provided by the underwriters concerned, nor the provision of the insurance related services of an insurance broker or agent, since Ford was not itself such a broker or agent and offered no such services. It did nothing other than to pay for the insurance, thereby avoiding the need for the customer to do so.

In response, Mr Peacock on behalf of Ford has relied on various decisions of the ECJ.

In Card Protection Plan CPP obtained block cover for its card-holder customers from an insurance company, Continental, under a group or block policy arranged by an insurance broker instructed by CPP. CPP’s customers were the named insureds. In the case of any claim, the customers were required to give notice of loss to CPP, who handled claims for under £5,000 themselves under an authority granted in the policy. Larger claims were either handled by Continental or delegated to CPP under ad hoc authority. The ECJ reasoned its decision that the insurance provided to the card-holders was exempt as follows:

“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 for 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.

22.

Such a supply of services by CPP constitutes an insurance transaction within the meaning of art 13B(a). It is true that the exemptions provided by art 13 of the Sixth Directive are to be construed strictly (see Stichtung Uitvoering Financiële Acties [1989] ECR 1737 at 1753, para 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.

23.

That interpretation is supported by the purpose of the Sixth Directive, which exempts insurance transactions but gives member states, in art 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 art 13B(a).

24.

Having regard to the foregoing, there is no further need to consider whether CPP carried on the activity of an insurance agent referred to in art 13B(a) of the Sixth Directive.”

In Peugeot, where it was similarly held, as this court has done, that there was no independent supply of insurance to the car customer, basing himself on Card Protection Plan, Blackburne J further considered, in passing, that Peugeot’s “service, namely a promise to secure motor insurance for the end-user, [would], if made for consideration, [be] exempt” (at [82]), accepting the submissions of the taxpayer’s counsel at [39]. However he continued:

“It is also unnecessary to decide whether the nature of the insurance-related supply made by Peugeot/Citreon is itself an insurance transaction or is no more than the making of arrangements for a contract of insurance to come into being. Of the two, I prefer the latter.”

It may be that Blackburne J was there indicating that he would regard the reason why such a supply, if made for a consideration, would be an “insurance transaction” within the meaning of the exemption was that it was a related service performed by a broker or agent. However, that was not the way that Mr Cordara, Peugeot’s counsel, had put the matter at [39], where he had relied on the analysis in Card Protection Plan.

In Lindsay Cars Ltd v. Commissioners of Customs and Excise [2005] V & DR 21, where it was held by the VAT Tribunal (Mr Stephen Oliver QC, chairman) that the supply of “second year” car insurance was an independent supply separate from that of a car with its first year insurance, the tribunal went on to find that this supply was within the exemption on the ground that it was “insurance related” and that the taxpayer (an independent Ford main dealer) was an “insurance agent” (at [58]).

By the time of Lindsay Cars, the ECJ had considered that part of the 13B(a) exemption concerned with “related services performed by insurance brokers and insurance agents” in Staatssecretaris van Financiën v. Arthur Andersen & Co Accountants m c [2005] STC 508 (Arthur Andersen). That was not a case like this, or Peugeot, or Lindsay Cars, but concerned a taxpayer who was a firm of accountants (Arthur Andersen) which had agreed to perform sub-contracted insurance related services for an insurer, such as the setting and payment of commissions, and the maintenance of contact with insurance agents and the tax authorities. However, these were not the activities of agents whose work was concerned with bringing insurers and assureds together for the purpose of the supply of insurance cover, but rather what might be described as “back-office” services provided to the insurer alone, to assist it with its business management. It was common ground (para 22) that Arthur Andersen had no contractual relationship with assureds and that the services supplied could not be insurance transactions, unless they were the insurance related services of an insurance agent or broker. But they were not that either (para 34), in part because (para 36) –

“as the Advocate General pointed out in para 32 of his opinion, essential aspects of the work of an insurance agent, such as the finding of prospects and their introduction to the insurer, are clearly lacking in the present case.”

In Lindsay Cars, the VAT tribunal was able to contrast the services provided by Lindsay with those discussed in Arthur Andersen. Its decision reasoned (at para 58):

“Here, it seems to us, Lindsay’s role is not that of sub-contractor to either the insurer or the insured. Lindsay has the benefit of Norwich Union’s undertaking to insure Lindsay’s customers…Lindsay is legally committed by the advertisement to provide the customer with additional insurance cover. Lindsay’s structural role is to be found in the arrangements by which insurer and insured are brought together…On that basis Lindsay would, were the matter to become relevant, satisfy the Advocate General’s suggested tests and qualify as an insurance agent.”

Global Self Drive Ltd v. Commissioners of HM Revenue and Customs [2005] V & DR 284 is another decision of the VAT Tribunal (Mr John Walters QC, chairman), there concerned with insurance cover provided in the course of a car-hire transaction. The tribunal held that the supply of insurance was a separate, and exempt, supply. The hiring company had a block policy, to which its customers could be declared as insureds, as in Card Protection Plan (at para 22). However, the tribunal also said that the insistence on a block policy was unnecessary and reflected too narrow a reading of Card Protection Plan. It reasoned (at para 29):

“In our view the provision of insurance cover by a taxable person who is not himself an insurer but who procures such cover for his customers by making use of the supplies [to the taxable person] of an insurer who assumes the risk assured would be an “insurance transaction” within the exemption, whether or not a block policy was used. Only on this basis is the danger of double taxation of insurance transactions (the imposition of VAT and, in the United Kingdom, insurance premium tax), mentioned by the Court of Justice at paragraph 23 of the judgment in Card Protection Plan, avoided.”

Most recently, the ECJ has again considered the scope of the article 13B(a) exemption in Assurandor-Societetet, acting on behalf of Taksatorringen v. Skatteministeriet (Case C-8/01) [2006] STC 1842 (Taksatorringen). The taxpayer was an association of insurance companies which performed services on behalf of its members as an assessor of damage to motor vehicles in Denmark. The question was whether those services fell within the exemption. It was held that they did not. They were neither insurance transactions nor were they services related to insurance transactions performed by insurance agents or brokers. The decision is in no way surprising. There was no relevant contractual relationship, so far as these services were concerned, between an insurer and its assured: see paras 41 and 44. In the latter paragraph the ECJ said –

“As to whether such services are ‘related services performed by insurance brokers and insurance agents’, it must be stated, as the Advocate General has set out in para 86 of his opinion, that this expression refers only to services provided by professionals who have a relationship with both the insurer and the insured party, it being stressed that the broker is no more than an intermediary.”

Against the background of these cases, it seems to me that Mr Anderson faced a difficult task to make good his submission that, if Ford had made a separate independent supply of insurance cover for consideration to its customers, it would not be exempt under article 13B(a). In effect, Mr Anderson had to succeed in showing that Card Protection Plan was a narrow decision, and that the opinions expressed in Peugeot, Lindsay Cars, and Global Self Drive (which admittedly do not bind this court) were all mistaken. He sought to do that by emphasising the strictness with which exemptions as a whole ought to be construed, itself recognised in Card Protection Plan (at para 22); the reliance in Card Protection Plan on the existence there of a block policy (at para 22, “in the context of a block policy”); the common ground that Ford was not an insurance broker or agent within the meaning of the Insurance Directive (EC Council Directive 77/92, and see Arthur Andersen at para 29); and that Ford provided no services as an agent or broker in any event, and was receiving no commission.

In my opinion, however, Ford was plainly concerned with effecting a contractual insurance relationship between the insurer concerned and the car buyer. Its role was quite unlike that of the taxpayer in either Arthur Andersen or Taksatorringen, where the services were provided only to the insurer, for its own management purposes and quite apart from the making of an insurance transaction between insurer and assured. In the former circumstances, Card Protection Plan and the national decisions in Peugeot, Lindsay Cars and Global Self-Drive all suggest that a supply such as is assumed for present purposes in the present case is an insurance transaction within the meaning of article 13B(a). The only remaining question is whether it is such a transaction only because it is an insurance related service performed by an insurance broker or agent. Even if it is, it remains an “insurance transaction”. That expression is the global expression, and includes insurance related services performed by an insurance broker or agent. Since the definition is inclusive, subject to the need to construe the exemption stringently, in accordance with its purpose, there is nothing to suggest that the expression “insurance transaction” is a particularly narrow one. It plainly includes both situations where the provider, or procurer, of the insurance cover, is not himself the underwriter of that cover (Card Protection Plan) and situations where the service supplier is acting as an agent or broker only. All this suggests that it may not be helpful to raise salami-slicing definitional issues as between insurance contracts in their most straightforward form on the one hand and services provided by agents and brokers for the purposes of effecting insurance contracts on the other hand.

I would be inclined to conclude that the present situation is to be assimilated to that in Card Protection Plan. Although Ford was not the insurer itself, it did more than effect an insurance policy as a mere agent or broker. Whether or not its agreements with RAC, Guardian Direct and Norwich Union amounted to what was described in that case as a group or block policy, they were agreements under which the relevant insurers gave to Ford the power and the authority to bind cover. They were forms of open cover. The insurers, within certain limits, promised Ford to provide cover to Ford’s customers, and Ford promised its customers to procure the insurers’ cover for them. I am inclined to think that this goes beyond the mere provision of the services of intermediaries in connection with the effecting of an insurance transaction. An insurance agent or broker does not typically warrant the procurement of insurance cover. If, however, I am wrong about that, it remains the case that, through Ford, insurance cover was provided directly from insurer to insured, and it seems me that that could well be described as related services provided by insurance agents or brokers: even if, a question left open in Taksatorringen, Ford was not an insurance agent or broker strictly within the Insurance Directive. If, however, it was not and future decisions of the ECJ were to demonstrate that only insurance agents or brokers within the meaning of the Insurance Directive sufficed for the purposes also of article 13B(a) of the Sixth Directive, I would be inclined to think that that would be a further reason for concluding that a case such as this was within the rationale of Card Protection Plan.

In my opinion, if the other issues on this appeal had been decided in favour of Ford, the hypothetical separate and independent supply for consideration of insurance underwritten by third party insurers would have been exempt within article 13B(a) of the Sixth Directive.

I agree that this appeal should be dismissed for the reasons given by The Chancellor. I also agree with what Rix LJ says in his judgment.