WTGIL Limited v The Commissioners for HMRC [2025] EWCA Civ 399

[2025] EWCA Civ 399Case No CA-2024-001181
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Adam Johnson and Judge Thomas Scott
[2024] UKUT 00077 (TCC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11 April 2025
Before
LORD JUSTICE POPPLEWELLLORD JUSTICE NUGEESIR LAUNCELOT HENDERSON
Between
WTGIL LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondents
Hui Ling McCarthy KC (instructed by Enyo Law LLP) for AppellantPeter Mantle (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for RespondentsHearing Hearing dates: 4 and 5 March 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on [date] by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

Sir Launcelot Henderson:

[1]This case concerns the correct treatment for VAT purposes of one element of a specialised form of motor insurance aimed mainly at young drivers aged between 17 and 25. The special feature of this type of insurance is that it requires the fitting of an electronic device to the driver’s car (“the Device”) which records and transmits information about how the car is being driven. The Device is similar in size to a mobile phone. The information which it captures relates to matters such as the date and time of travel, acceleration and deceleration, braking, cornering, speed, distance travelled and location. This “telematics” data is then collected and analysed, typically by or on behalf of the provider of the Device, and made available both to the insurer, which can use it to monitor the policyholder’s driving behaviour and increase or decrease his premiums accordingly, and to the insured policyholder, who can use it to help improve his driving skills and thus reduce the cost of his car insurance. Because of this special feature, such insurance is often referred to as “black box” or “telematics” car insurance.[2]The appellant, WTGIL Limited, was called Ingenie Limited (“Ingenie”) at all times relevant to this appeal, and I will so refer to it. Ingenie was, and is, the representative member of a VAT group, the only other member of which is a company now called WTGISL Limited, but at all material times called Ingenie Services Limited. I will follow the Tribunals below in referring to this company as “ISL”.[3]The supplies in issue in these proceedings were made by ISL during the VAT periods 07/14 to 07/18. It is now agreed that the supplies in question consisted of the provision and fitting of Devices to the cars of drivers taking out specialised insurance policies of the kind I have described. The supplies were deemed to have been made by Ingenie as the representative member of the group, which explains why the appellant is Ingenie rather than ISL; but for the purposes of exposition and analysis it is convenient to refer to ISL, which in fact made the supplies, as the supplier.[4]The background was helpfully summarised by the First-tier Tribunal (“FTT”) (Tribunal Judge Greg Sinfield, President of the Tax Chamber) in his corrected decision released on 1 June 2022 (“the FTT Decision”, [2022] UKFTT 131 (TC)) at [3] to [5]. Those paragraphs were also set out in full in the decision of the Upper Tribunal (Tax and Chancery Chamber) constituted by Adam Johnson J and Judge Thomas Scott (“the UT Decision”, [2024] UKUT 00077 (TCC), [2024] STC 830) at [6]. I have already drawn on this summary in para [1] above. Other key points to note at this stage are:(1) ISL is an insurance intermediary which developed, marketed and sold telematics car insurance, which (as I have said) was aimed primarily at drivers aged between 17 and 25. Ingenie and ISL are not themselves insurers, however, and the policies were underwritten by insurers from a panel available to ISL.(2) As a condition of the insurance, the Device must be fitted to the policyholder’s car within 10 days of the commencement of the policy.(3) ISL agrees with both the insurer and the policyholder to provide the Device and fit it or arrange for it to be fitted.(4) ISL (or Ingenie acting on behalf of ISL) collects and analyses the telematics data from the Device and provides an analysis of the policyholder’s driving proficiency to the policyholder and to the insurer, for the broad purposes indicated above.[5]The only witness to give evidence before the FTT was Luke Proctor-Wilton, who had worked at Ingenie since May 2018. The FTT found him to be a credible witness, and it accepted his evidence of fact: see the FTT Decision at [14]. On the strength of his evidence, the FTT found at [17] to [19] that both Ingenie and ISL were incorporated in 2010 to provide different elements of “a telematics offering”. Ingenie developed the requisite technology, including the software, algorithms and analytical processes, while ISL was the “customer-facing entity”. ISL was authorised by the FCA to provide insurance brokerage services, and it entered into “Broker Agreements” with certain insurers under which ISL agreed to arrange and administer insurance policies which required the use of the Device by policyholders, and ISL also agreed to provide the data thereby collected to the insurers. One of the insurers appointed by ISL to its panel of underwriters was Covea Insurance plc (“Covea”), with which ISL entered into a written Terms of Business Agreement dated 27 November 2013 (“the Covea Business Agreement”). It was agreed that the Covea Business Agreement could be taken as typical of ISL’s written contracts with the other insurers on the panel.[6]Until 2018, ISL was evidently content to conduct and report its VAT affairs on the basis that its supplies of providing and fitting the Device, and any subsequent data analysis, all formed part of a single composite supply of insurance intermediary services, which was exempt from VAT pursuant to Article 135(1)(a) of the Principal VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax) (“the PVD”), which provided that “Member States shall exempt … insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents”.[7]Article 135(1)(a) was implemented in the domestic legislation of the United Kingdom by the Value Added Tax Act 1994 (“VATA 1994”) section 31(1) and Schedule 9, Group 2 – Insurance, Items 1 and 4, and the accompanying Notes. These domestic provisions, which it is common ground must be construed in conformity with the Directive, flesh out its simple language in various respects to which I will return later. For now, it is enough to note that Item 1 exempts “Insurance transactions and reinsurance transactions”, while Item 4 exempts “The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services –(a) are related … to an insurance transaction or a reinsurance transaction; and(b) are provided by that broker or agent in the course of his acting in an intermediary capacity.”[8]One consequence of a supply (whether of goods or services) being exempt is that the supplier has no entitlement to deduct or reclaim input tax which it has incurred for the purpose of making the exempt supply: see Articles 167 and 168 of the Directive, the latter of which confines the right of deduction to cases where the relevant input goods and services “are used for the purposes of the taxed transactions of a taxable person”. It follows that, for so long as ISL successfully claimed exemption for its supplies of providing and fitting the Device in the cars of policyholders, it had no output tax to account for in respect of those supplies, but it was also unable to reclaim any directly linked input tax, including for example the VAT which it paid to the supplier from which it bought the Devices. As Mr Proctor-Wilton explained in his written evidence, ISL procured the Devices from a third-party supplier, Redtail Limited, and it also sub-contracted their fitting to another third-party company called Avian Mobile Limited.[9]Against this background, and presumably after taking specialist advice, on 30 August 2018 Ingenie (as the representative member) made a claim by way of an Error Correction Notice (“ECN”) for a net refund of £2,084,149 in respect of input tax incurred in relation to the provision and fitting of Devices in the VAT periods 07/14 to 07/18 inclusive. As the FTT said at [4], the claim “was based on the view that the provision and fitting of Devices were taxable supplies made by ISL to the policyholders, whether or not for consideration, and the input tax was attributable to such supplies”. Para 30(c) of the ECN claimed that input tax was recoverable on the purchase price of the Devices and the associated fitting costs “because in each case the VAT incurred is directly attributable to the supply of the devices to the Insured.”[10]HMRC opened an enquiry into the ECN and rejected the claim in an undated decision letter sent to Ingenie on 25 July 2019 by Hugh O’Hare, a Senior Officer in HMRC’s Wealthy/Mid-sized Business Compliance office in Newcastle (“the HMRC Decision Letter”). The letter ran to 89 numbered paragraphs. It set out HMRC’s understanding of the relevant facts and documents in considerable detail, and reviewed the legal arguments then advanced in support of the claim. The FTT summarised the core of HMRC’s reasoning at [5]:
“HMRC took the view that the only consideration for ISL’s supplies of providing and fitting the Device and any subsequent data analysis was the commission paid to ISL by the insurer which was consideration for an exempt supply of insurance intermediary services. Accordingly, any input tax relating to the Device was directly linked to an exempt supply by ISL and not deductible. HMRC also considered that charges in relation to the fitting of a new device when the policyholders changed their car were either additional premium charged by the insurer or consideration for an exempt supply by ISL.”
[11]Ingenie then appealed to the FTT, which heard the appeal over four days in December 2021. In its amended grounds of appeal, Ingenie contended that the VAT incurred on the cost of purchasing and fitting the Devices was recoverable in full because it was directly attributable to taxable supplies made by ISL. Those taxable supplies were identified as(a) the first provision and fitting of a Device on commencement of a policy, in return for either a non-monetary consideration provided by the policyholder entering into the contract of insurance with the insurer, or alternatively monetary consideration consisting of the £150 commission payable to ISL by the insurer;(b) any subsequent provision and fitting of a Device, for example on a change of vehicle, in return for the amount charged to the policyholder in such an event under the insurance contract; and(c) if there was no consideration for the provision and fitting of the Device, a deemed supply of goods under paragraph 5(1) of Schedule 4 to VATA 1994 when the Device is transferred or disposed of so as no longer to form part of the assets of ISL: see the FTT Decision at [6].[12]The FTT recorded at [7] that Ingenie’s primary case, as advanced by Ms Hui Ling McCarthy KC, appearing then (as she has subsequently) for Ingenie, with Mr Benjamin Parker was that:
“there was a legal relationship between ISL and the policyholder under which ISL supplied and fitted the Devices then used them to collect data which ISL provided to the policyholder and the insurer in return for non-monetary consideration provided by the policyholder, namely entering into the contract of insurance with the insurer.”
[13]For his part, Mr Andrew Macnab, who then appeared for HMRC, submitted that ISL made a single indivisible exempt supply of insurance intermediary services either(a) to the insurer in return for the commission; or(b) to the policyholder; or(c) to both: [8]. In his skeleton argument, he contended that the “fundamental economic and commercial reality of the arrangements is that ISL sells insurance to Policyholders”, and because ISL was not itself the insurer “the only economically and commercially realistic analysis is that ISL makes a single, indivisible supply of insurance intermediary services” (para 50).[14]In the event, the FTT did not need to consider the merits of HMRC’s argument in favour of a single exempt supply, because it held that(a) ISL did not make any supply of goods for consideration when it provided and installed the Device in a policyholder’s car;(b) this analysis accorded with the economic and commercial reality of the transactions; and(c) there was no deemed supply of the Devices to the policyholders when their policies lapsed or were cancelled. In view of these holdings, it followed that Ingenie had failed to discharge the burden of establishing its positive case. Judge Sinfield did, however, indicate at [72] that, had it been necessary to do so, he would have acceded to HMRC’s application to re-amend their Statement of Case so as to include the alternative formulations of the recipients of the single exempt supply mentioned in para [13] above. The Judge said that the new point was “an obvious one which was likely to arise in the proceedings”, it did not require any new evidence, and ISL and its advisers had had adequate time to consider it. In the circumstances, he concluded that it would not be unfair to permit the amendment.[15]Ingenie then appealed to the Upper Tribunal, with permission granted by the FTT. The Upper Tribunal heard the appeal over two days in November 2023. The appellant was again represented by Ms McCarthy KC leading Mr Parker, but HMRC were now represented by Mr Peter Mantle. The Upper Tribunal dismissed the appeal, for the reasons given in the UT Decision. In bare outline, and at the risk of some over-simplification, the Upper Tribunal rejected Ingenie’s primary argument that ISL made a supply to policyholders for consideration, holding that(a) there was a supply of services by ISL to policyholders (consisting of the provision and installation of the Devices), and(b) this supply did not form part of a single exempt supply of insurance intermediary services in accordance with HMRC’s “overarching position” (which broadly corresponded with HMRC’s basic submission to the FTT), but(c) the requirement of consideration for the supply (in the sense of “consideration” as a matter of EU law) was not met, whether the consideration was non-monetary or monetary in form. The Upper Tribunal also rejected Ingenie’s secondary, and alternative, argument that ISL satisfied the conditions for a deemed supply for VAT purposes. I need not summarise the reasons given for rejecting the secondary argument, because Ingenie no longer advances any case based on the existence of a deemed supply.[16]Ingenie now appeals to this court, with permission for a second appeal granted by the Upper Tribunal. At the hearing of the appeal, Ms McCarthy KC appeared without a junior for Ingenie, and HMRC were again represented by Mr Mantle. We are grateful to both counsel for their able and thought-provoking arguments.

The issues on the appeal

[17]In its grounds of appeal dated 21 May 2024, Ingenie contended as a preliminary matter that the correct classification of the supply by ISL to policyholders was a taxable supply of provision, fitting and use of the Device (i.e. a supply of services). Alternatively, ISL supplied the Device (a supply of goods) and fitting services to policyholders. In their respondent’s notice dated 6 June 2024, HMRC expressed their agreement with Ingenie that the Upper Tribunal’s description of a service of the “installation of the Device” included both the provision of the Device for the purpose of its being installed in the policyholder’s car and the fitting of the Device to the policyholder’s car. However, said HMRC, the relevant service did not include “collection and analysis of the resultant data”, as the Upper Tribunal had correctly held at [39] and [73] of the UT Decision, because the parties have always agreed that data collection and analysis services fell outside the scope of the appeal. Further, there was no difference of substance between the service described by the FTT as “the provision and fitting of the Device” and the service described by the Upper Tribunal as the “installation of the Device”. However, the relevant service did not involve “use” of the Device, because the policyholder himself could not use the Device in any economically realistic sense and because ISL used it only in the sense of collecting and analysing data automatically transmitted by the Device. HMRC added, in a footnote, that the Device was used by ISL in part to make its supplies of insurance intermediary services to the insurer and in part to make the supply of the provision and fitting of the Device to the policyholder.[18]It became clear early in Ms McCarthy’s oral submissions in support of Ingenie’s appeal, if it was not already clear from the parties’ written arguments, that it may now be taken to be common ground that the relevant supplies which we have to consider:(a) are supplies of services, not goods;(b) the services consist of the provision and fitting of the Device in the policyholder’s car; and(c) they do not include the use made of the data collected by the Device. Indeed, Ms McCarthy told us in relation to this last point that HMRC have yet to make an appealable decision on so much of Ingenie’s claim to recover input tax as relates to the provision of data services through use of the Device. I should also make it clear that, as I understand the position, Ingenie is not formally abandoning the argument that the supply of a Device may be viewed in isolation as a supply of goods: it is just that there is no need for Ingenie to run such an argument, given the common ground that there was in any event a supply of services consisting of the provision and fitting of the Devices.[19]With the benefit of this clarification, Ingenie appeals from the UT Decision on two alternative grounds: first, that ISL made taxable supplies of services to policyholders for non-monetary consideration (Ground 1); and secondly, that ISL made taxable supplies of those services to policyholders for monetary consideration (Ground 2). If the appeal were to succeed on Ground 1, ISL also invites us to rule on the basis upon which output tax on the supplies should be calculated, rather than remitting the question to either the Upper Tribunal or the FTT for determination. Were the appeal to succeed on Ground 2, ISL anticipates no dispute (and I see no reason to doubt) that the output tax would fall to be calculated on the amount of monetary consideration received.[20]HMRC’s primary contention is that this court should uphold the UT Decision for the reasons given by the Upper Tribunal for dismissing ISL’s first appeal. Alternatively, by paras 3 and 4 of their respondent’s notice, HMRC ask us to uphold the UT Decision on either of two further grounds: first, that the supply of services made by ISL to policyholders was an exempt supply of insurance intermediary services within Item 4 of Group 2, Schedule 9 VATA 1994 (see [6] above); and secondly, that the non-monetary consideration identified by Ingenie for the supply of services by ISL to policyholders is not capable of being expressed in money terms, and is therefore incapable of being “consideration” for the purposes of VATA 1994. On the first of these grounds, it is said that the Upper Tribunal erred in law at [49] in dismissing the exemption argument. On the second ground, it is said that the Upper Tribunal also erred in law at [79] in holding that the relevant consideration was capable of being expressed in money terms.

Facts

[21]There is little of substance that I need to add to the basic background facts which I have already described, although it will be necessary to examine the written arrangements between the parties in some detail.[22]The FTT made its main findings of fact at [17] to [34] of the FTT Decision, a summary of which is contained in the UT Decision at [8]. In the selective account which follows, paragraph references are to the FTT Decision:(1) ISL sub-contracted the performance of its services to a company called UKAIS Limited, which later changed its name to Ageas Retail Limited (“ARL”). The terms of this arrangement were set out in a Third Party Administration Agreement, under which ARL agreed to arrange and administer the insurance, including the collection and adjustment of premiums, cancellations and policy renewals: [21] and Annex 2, pp 31-5.(2) ISL sold policies to young drivers looking for car insurance through its own website, which was hosted by ARL, and also through aggregator websites such as GoCompare. The aggregator websites redirected potential customers to the ISL website which contained information about the Ingenie telematics insurance policy and the Device: [22].(3) The ISL website also contained extensive information about the benefits of having a Device and how it worked, stating that there was no additional cost for a Device as its cost was included in the premium: [23].(4) A driver who wanted to enter into a telematics policy went through what Mr Proctor-Wilton described as the “customer journey” on the ISL website. After entering the necessary personal and other information about themselves, their vehicle and the cover required, the driver pressed “get quote”, whereupon the details provided by the driver were submitted to the different insurers on the ISL panel who responded in less than a second with the premium they would charge for that driver. The customer was shown only the cheapest premium, however, and was informed that if the policyholder drove well they could earn discounts on their premium at the reviews which occurred three times a year as well as on renewal (i.e. at quarterly intervals). At this point, there was an opportunity for the customer to add optional items such as windscreen cover and breakdown assistance. At the end of the customer journey, the driver was shown how much they had to pay in total if they paid the premium in full or by instalments: [24].(5) The penultimate page of the customer journey contained a payment and policy summary with links to the policy wording and to a Terms of Business Agreement (“TOBA”), discussed further below, as well as to an Insurance Product Information Document in a form required by the FSA to be completed before purchase of the policy. This last document showed ISL as the company and “ingenie Comprehensive Car Insurance Policy” as the product: [25].(6) Not all policies were sold through the website. Drivers looking for car insurance could also contact the call centre operated by ARL. The process of going through the customer journey by phone was exactly the same as online, except that when offered a policy from a particular insurer, the customer could select another insurer. This option was not available on the website: [26].(7) ARL collected the premium from the customer, at which point ISL became entitled to the commission specified in the relevant broker agreement. The Covea Business Agreement provided that Covea would pay ISL commission for each policy calculated as 10% of the premium, excluding insurance premium tax (“IPT”), plus £150 for the Device fitted to the policyholder’s car. Where the policyholder already had a working Device fitted by ISL, e.g. on renewal of a policy, no additional amount was payable by the insurer and the commission was simply 10% of the premium net of IPT. Having collected the premium and calculated the commission, ARL paid the net amount of the premium to the insurer and paid the commission to ISL less an amount retained by ARL as payment for its services to ISL. Although the premium consisted of three elements (which I take to be the net amount payable to the insurer, the commission due to ISL and (where applicable) the cost of the Device), Judge Sinfield said he “did not understand there to be any dispute that the policyholders saw the policy as a single transaction with a single premium”: [28].(8) Once the driver had entered into the policy, ISL would send a welcome letter and other documents to the policyholder. The letter was headed “Welcome to Ingenie”. It specified the start date of the policy and stated that the Device must be fitted within 10 days of that date. The letter explained what the policyholder had to do to arrange the fitting of the Device. It also provided details of a portal on the ISL website and a mobile phone application (“app”) which was downloaded by 98% of policyholders, thus allowing them to obtain information about their driving on their mobile phones: [29].(9) ISL subcontracted the collection and analysis of data from the Device to Ingenie. ISL sent the policyholders messages about the standard of their driving every 10 days. If a policyholder’s driving fell short of the required standard, ISL could and sometimes did adjust the premium immediately after the quarterly recalculations or, if the driving was unacceptable, arrange for the policy to be terminated.(10) With the welcome letter, ISL also sent the policyholder a document (“the Policy Booklet”) which was issued with minor variations of wording in 2013, 2015 and 2017. This was the document which the customer would have accessed if they had clicked the link for “Policy Wording” on the website “journey”. It was agreed that none of the differences in wording was material, and that the 2015 Policy Booklet could be taken as typical. In each case, the first section of the Policy Booklet contains what was described as the “contract” between ISL and the Policyholder, while the second section contains the contract between the insurer and the policyholder: [31-32] and Annex 2 pp 35-43.(11) In his oral evidence, Mr Proctor-Wilton agreed that, having sold a telematics insurance policy to the customer, ISL was responsible for every aspect of the essential features of that policy, even though it subcontracted some of its obligations to ARL.

(a) The Covea Business Agreement

[23]The Covea Business Agreement was made on 27 November 2013 between Covea (defined as “Covea Insurance”) and ISL (defined as “the Intermediary”). The background recitals stated that Covea Insurance was authorised pursuant to the Financial Services and Markets Act 2000 (“FSMA”) to effect and carry out general insurance contracts in the United Kingdom, that ISL was authorised pursuant to FSMA “to undertake general insurance mediation activities”, and that: “(3) The Intermediary has developed, markets and sells a retail motor insurance policy and operates a panel of insurers who underwrite the policy. The Intermediary wishes to appoint Covea Insurance to the panel, and Covea Insurance wishes to accept such appointment, subject to, and in accordance with, the terms and conditions set out in this Agreement”.[24]By clause 3.1, Covea Insurance authorised ISL on a non-exclusive basis, and ISL agreed to:
“3.1.1 enter into, and effect renewals of Products; 3.1.2 carry out mid term adjustments to Products; 3.1.3 calculate and carry out quarterly adjustments to the Premium payable for Products, such adjustments being made as a result of the driving performance of the policyholders in question; 3.1.4 effect cancellations of Products in accordance with their terms (and/or as agreed in writing between the parties from time to time); and 3.1.5 collect Premiums and, when due, refund Premiums to insureds, on Covea Insurance’s behalf … For the purposes of this Agreement, the Intermediary has no authority to act as the agent of Covea Insurance unless stated otherwise in this Agreement. In particular the Intermediary is solely responsible for any advice the Intermediary gives its customers.”
[25]Clause 4 then set out the obligations and rights of ISL, including:(a) by clause 4.1, to market and sell the Policies, and to provide Covea Insurance with full details of every proposed Policy, etc;(b) by clause 4.1.5, to comply at all times with relevant guidance issued by Covea Insurance to ISL;(c) by clause 4.3, to notify Covea Insurance immediately on the happening of specified events, including “4.3.13 of all material information in relation to a Policy notified to it by an Insured. The Intermediary shall be deemed to be the agent of the Insured for the purposes of receiving information from an Insured”; and(d) by clause 4.4, to install (or procure the installation of) a Device into the vehicle of each new Insured, to activate it and monitor its performance, to replace any Device which is defective, to receive and analyse the resulting data, to provide reports to Covea Insurance containing the results of such analysis, and on cancellation of a Product to deactivate the Device within 7 days.[26]Clause 4.5 then provided that:
“Except as otherwise stated in clause 4.4 and without prejudice to its entitlement to Commission, the Intermediary shall not be entitled to any fee, charge or other form of remuneration in return for performing any of its obligations under clause 4.4.”
[27]Clause 8 contained the provisions relating to premium. By clause 8.1, ISL was responsible for payment of the premium to Covea Insurance by the due date, for every policy issued following an introduction by ISL. By clause 8.5, any payment of premium made by an Insured to ISL was deemed to have been paid to Covea Insurance when received by ISL in cash or cleared funds. Clause 8.6 obliged ISL to pay the premiums it received into a trust bank account held for the benefit of Covea Insurance.[28]Clause 9 dealt with commission:
“9.1 Covea Insurance shall pay the Intermediary Commission for each Product underwritten by Covea Insurance and sold, or renewed, by the Intermediary calculated as follows: 9.1.1 £150 for each Product sold to an Insured who does not have a working telematic device already fitted by the Intermediary; and 9.1.2 10% of the Premium applicable to the Product excluding [IPT] and, if payable, the element of the Commission described in clause 9.1.1 but including any adjustment of Premium … for mid term adjustments and quarterly Premium adjustments … 9.2 Commission is due to the Intermediary once the Intermediary has collected the Premium from the Insured or from a party funding the Premium for the Insured. 9.3 The Intermediary shall refund the element of the Commission described in Clause 9.1.2 received (or shall not be entitled to any Commission as applicable) in relation to any Policy where: 9.3.1 the Policy is cancelled; …”
[29]Clause 10 prohibited ISL from appointing a sub-agent without the prior written consent of Covea Insurance, but Covea Insurance expressly gave its consent to the delegation by ISL to ARL (then called UKAIS Limited) of the authority granted to ISL by clause 3.1.[30]By clause 30, either party could terminate the Agreement at any time by mutual agreement, or on 30 days’ prior written notice to the other party.[31]Clause 37 provided that the Agreement was to be governed and construed in accordance with English law.

(b) The 2015 Policy Booklet

[32]The 2015 Policy Booklet is described on its front as “ingenie Car insurance Policy wording”, and its first section (on pp 3-4) is headed “Introduction to ingenie”. The section begins by saying:
“For this section only, this contract is between you and Ingenie Services Limited”
. It is then explained that words printed in bold have the special meanings shown in the definitions on pp 7-8. “You” means the policyholder shown under “Policyholder details” on the insurance schedule.[33]The text of the 2015 Policy Booklet is set out in Annex 1 to the UT Decision, as well as in Annex 2 to the FTT Decision. It is therefore unnecessary for me to reproduce it. With regard to section 1, it is enough to say that, apart from introducing the concept of telematics insurance, and describing “ingenie” as “a specialist car insurance brand for younger drivers”, it states that ISL “will arrange for a device to be fitted to the car”; explains how feedback on driving performance will then be available to the policyholder on the Ingenie app and website; also explains how ISL will use the telematics data to help the insurer manage the insurance and premiums payable, as well as enabling the car to be located if it is stolen; and says that ISL will aim to install the Device within 10 days of the commencement of the policy. It is further made clear that the Device remains the property of ISL, and it will only become the policyholder’s property after the insurance has lapsed or been cancelled. The section ends by stating that “This is the end of the ingenie section of this policy”, and that the following pages contain the details of the insurance cover provided by the insurer.[34]The contract of insurance between the insurer and the policyholder is then set out in section 2 of the Booklet, containing provisions of the normal kind that one would expect to find in a policy of motor insurance. There are also five pages which contain detailed information about the Device, its fitting, and how the telematics data will be collected and used by the insurer and ISL. For a fuller description of this part of the Policy Booklet, reference may be made to the FTT Decision at [51] to [57]. This description ends by setting out a table of charges relating to the Device in certain circumstances, including as the first item the “Cost of fitting your ingenie device for the first time” which is shown as “£0”. (c) The 2016 Terms of Business Agreement (“TOBA”) between ISL, ARL and the policyholder[35]The 2016 TOBA was evidently intended to set out the terms of business agreed between ISL and ARL on the one hand and the policyholder on the other hand. Many of the terms appear to be of a standard or boilerplate nature, and, as such, they cast little light on the issues we have to decide. The text of the document is set out in Annex 2 to the FTT Decision at pp 44-47. Significantly, however, the document begins by explaining that ARL and/or ISL “are an intermediary acting on your behalf offering products and services from insurers to meet your requirements.” It goes on to state that “In seeking insurance through us you agree to the [TOBA] and to us acting as your agent. This does not affect your normal statutory rights”. Details are also given of fees and charges which may be levied in various circumstances, for example if an appointment to fix a Device is missed, or for fitting replacement Devices on first or subsequent changes of vehicle by the insured.

(d) The Third Party Administrator Agreement between ARL and ISL

[36]Finally, in 2014 ARL (under its then name of UKAIS Limited) entered into a “Third Party Administrator Agreement” with ISL. The relevant provisions are set out in Annex 2 to the FTT Decision at pp 31-35, and they are briefly described by the FTT at [43] to [46]. This was the contract by which ISL sub-contracted the arrangement and administration of the telematics car insurance policies, including its obligations under the Covea Business Agreement, to ARL. As the FTT pointed out at [46], the services to be provided by ISL were set out in Schedule 3 to the Agreement, but although they included “managing the [Device] fitting process” and “providing Telematics Data to [ARL]”, the Agreement said nothing about the actual provision of Devices to policyholders. I comment that an obligation to provide, as well as fit, the Devices was probably understood to be implicit in the obligation of ISL under clause 6.1 to “promote and market the Product for the duration of the Term”, the Product being defined as “[ISL]’s telematics motor insurance product”. The term of the Agreement was a fixed term until 30 September 2015, and thereafter until terminated by six months’ written notice on either side. Legislation 38. The Principal VAT Directive[37]The main relevant legislative provisions in the PVD are set out by the Upper Tribunal at [10] to [20]. Subject to the question of exemption for insurance transactions raised by article 135(1)(a), the nub of ISL’s case now is that if ISL made taxable supplies of services forconsideration pursuant to article 2(1) of the PVD when it provided and fitted the Devices, it would be entitled to deduct input tax pursuant to article 168. It has throughout been common ground that EU law applies for the purposes of the appeal, because the relevant supplies were made before the withdrawal of the UK from the EU, and the abolition in domestic law of retained general principles of EU law by section 4 of the Retained EU Law (Revocation and Reform) Act 2023 does not apply “in relation to anything occurring before the end of 2023”: see section 22(5). Similarly, we remain bound, for the purposes of this appeal, by decisions of the Court of Justice of the European Union (“the CJEU”) and its predecessor, the European Court of Justice, provided they were made before the Implementation Period (“IP”) Completion Day on 31 December 2020, subject to this Court’s limited power to depart from retained EU case law in the circumstances provided for by section 6(4)(ba) of the European Union (Withdrawal) Act 2018 and regulations 3(b), 4 and 5 of The European Union (Withdrawal) Act 2018 (Relevant Court) (Retained EU Case Law) Regulations 2020 (2020 SI 1525).

Legislation

[38]Article 2(1) of the PVD states that:
“The following transactions shall be subject to VAT: (a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such; … (b) the supply of services for consideration within a Member State by a taxable person acting as such; …” (a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such; … (b) the supply of services for consideration within a Member State by a taxable person acting as such; …”
[39]It follows, as the Upper Tribunal correctly said at [14], that a transaction other than for consideration cannot be a supply for VAT purposes in the absence of an applicable deeming provision.[40]By virtue of article 14(1) of the PVD, a “supply of goods” means “the transfer of the right to dispose of tangible property as owner”, and by virtue of article 24(1) a “supply of services” means “any transaction which does not constitute a supply of goods”. The default position is therefore that any supply made by a taxable person acting as such which is not a supply of goods within the meaning of article 14(1) must be classified as a supply of services.[41]I have already referred, at [6] above, to the mandatory exemption in article 135(1)(a) for “insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents”.

VATA 1994

[42]Section 31(1) of VATA 1994 provides that “A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …”[43]Group 2 in Schedule 9 is headed “Insurance”. Since 2005, it has comprised two “Items” and 10 numbered paragraphs of related “Notes”. I have already quoted the relevant parts of Items 1 and 4 in [7] above, but for convenience I will repeat them:
“Item No 1. Insurance transactions and reinsurance transactions. 4. The provision by an insurance broker or insurance agent of any of the services of an insurance intermediary in a case in which those services – (a) are related (whether or not a contract of insurance or reinsurance is finally concluded) to an insurance transaction or a reinsurance transaction; and (b) are provided by that broker or agent in the course of his acting in an intermediary capacity.”
[44]Notes(1) and(2) then elucidate what is meant by “services of an insurance intermediary” and acting “in an intermediary capacity” in Item 4, as follows:
“(1) For the purposes of Item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs – (a) the bringing together, with a view to the insurance or reinsurance of risks, of – (i) persons who are or may be seeking insurance or reinsurance, and (ii) persons who provide insurance or reinsurance; (b) the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance; (c) the provision of assistance in the administration and performance of such contracts, I ncluding the handling of claims; (d) the collection of premiums. (2) For the purposes of Item 4 an insurance broker or insurance agent is acting “in an intermediary capacity” wherever he is acting as an intermediary, or one of the intermediaries, between – (a) a person who provides insurance or reinsurance, and (b) a person who is or may be seeking insurance or reinsurance or is an insured person.” (a) the bringing together, with a view to the insurance or reinsurance of risks, of – (i) persons who are or may be seeking insurance or reinsurance, and (ii) persons who provide insurance or reinsurance; (b) the carrying out of work preparatory to the conclusion of contracts of insurance or reinsurance; (c) the provision of assistance in the administration and performance of such contracts, I ncluding the handling of claims; (d) the collection of premiums. (a) a person who provides insurance or reinsurance, and (b) a person who is or may be seeking insurance or reinsurance or is an insured person.”
The exemption issue: were the provision and fitting of the Devices by ISL exempt services within Item 4 in Group 2 of Schedule 9 to VATA 1994?[45]In my view it is logical to begin with the question whether the services supplied by ISL consisting of the provision and fitting of the Devices in the cars of policyholders were exempt services within the meaning of Item 4 in Group 2 of Schedule 9 to VATA 1994, read with Notes (1) and (2). Not only was this the agreed position before Ingenie changed its stance in 2018 and submitted its ECN claim (see [6] and [9] above), but, if established as a matter of law, it provides a complete answer to Ingenie’s appeal. It also seems natural to deal with this issue at the beginning, rather than the end, of the analysis, bearing in mind that ISL was, on any view, an insurance intermediary which introduced prospective customers for telematics motor insurance to underwriters such as Covea Insurance, and it is common ground that at least some of the services which ISL supplied in connection with such insurance were covered by the exemption. It is therefore natural to ask why the provision and fitting of the Devices, which were an integral and indispensable part of the insurance product offered under the Ingenie brand, should be treated differently from other activities of ISL which it seems to me would on any view fall within the scope of the exemption, such as (for example) the operation of the website by ISL (through its agents) and other services provided in arranging the insurance. Does it really make all the difference, one might ask, that the Device was provided and fitted as a physical object in the policyholder’s car, especially as it is no longer contended that there was a supply of goods to the policyholder?[46]I am also not deterred from taking this course by the fact that HMRC’s “overarching position”, as it was described in Mr Mantle’s written submissions to the Upper Tribunal, namely that ISL made “only exempt supplies of services of an insurance intermediary, regardless of the direction of supply”, has received relatively little attention so far in these proceedings. As I have explained, the FTT found it unnecessary to deal with the merits of the exemption issue at all (see [14] above); and, as will soon become clear, the Upper Tribunal dealt with the question in fairly short order, although (rightly, in my opinion) it did address the issue at an early stage of its legal analysis, before turning to the issue of “supply for a consideration” which it regarded as “the most difficult question” in the appeal: see [50]. As the Upper Tribunal said, at [34]:
“It is in our view necessary to decide whether ISL did make a supply, and what the supply comprised, before one can properly determine whether the supply was for a consideration.”
[47]The reasoning of the Upper Tribunal on the exemption issue is to be found at [44] to [50] of the UT Decision, coming after its rejection of an argument which is no longer pursued by HMRC that some provisions of goods or services are deprived of the character of a supply when viewed in context, because they are no more than the necessary pre- condition to the supply of a service. That argument was considered by the Upper Tribunal at [40] to [43], leading it to conclude that (subject to the issues which followed) there was a supply of services by ISL to policyholders in respect of the installation of the Device.[48]The Upper Tribunal then continued, under the heading “What was the nature of the supply?”:
“44. HMRC said that its “overarching position” is that ISL “made only exempt supplies of services of an insurance intermediary, regardless of the direction of supply”
. Mr Mantle’s skeleton argument set out the submission in terms that “ISL made a single, indivisible supply of insurance intermediary services to the Insurer in return for the commission pursuant to the [Covea Business Agreement], or to the policyholder pursuant to the TOBA, or to both”. Mr Mantle argued that whether one started with the contracts or looked at the commercial and economic reality of the transactions, ISL was acting exclusively as an insurance intermediary, arranging and administering the relevant insurance policies. That was the case regardless of whether the recipient of those services was either or both of the insurer or the policyholder.”[49]The Upper Tribunal then set out the relevant statutory provisions of Group 2 in VATA 1994, and went on to say:
“46. We do not accept HMRC’s characterisation of the services supplied by ISL. The questionof whether ISL acts in the overall arrangements as an insurance intermediary is not the issue. What matters for the purposes of this appeal is the nature of the particular services provided by ISL to policyholders under Part 1 of the 2015 Policy Booklet. 47. When we asked Mr Mantle to particularise the precise basis on which particular ISL services to policyholders fell within Items 1 or 4, interpreted consistently with the Notes to those provisions, it was telling that he found that task difficult. We agree with Ms McCarthy that, while ISL supplies insurance intermediary services to the insurer under the arrangements, there is simply no support in the contractual documentation for concluding that ISL’s services to policyholders fall within Item 1 of Group 2 (insurance or reinsurance). As regards Item 4, in light of our statement above that we have proceeded on the basis that the supply by ISL to policyholders was a supply of services, comprising installation of the Device, HMRC’s argument requires a conclusion that such a service was provided by ISL acting as broker or agent in the course of acting in an intermediary capacity. While it is possible to regard the act of installing the Device as a “service of an insurance intermediary”, likely falling within Note 1(b), there is in our opinion no indication in Part 1 of the Policy Booklet, or the TOBA, or the arrangements viewed economically and realistically, that ISL was providing this service in the course of acting “in an intermediary capacity” as that requirement is explained by Note 2. 48. Mr Mantle also argued that ISL’s overall services fell within Note 1(a), because ISL was “bringing together” the policyholder and the insurer. However, while in a general sense ISL’s role may have facilitated the entry into of the insurance contract, it is unwarranted to categorise the service of installation of the Device in this way, and, as Ms McCarthy pointed out in reply, ISL is not remunerated by policyholders for any bringing together of the parties. 49. We conclude that the services provided by ISL to policyholders were not comprised exclusively of services falling within Group 2 of Schedule 9 VATA 1994. 50. So, ISL made a supply of services to policyholders, comprising the installation of the Device, which would be a taxable supply if made for consideration. We now turn to the most difficult question in this appeal.”
[50]In summary, therefore, the Upper Tribunal’s main reasons for rejecting HMRC’s argument that the exemption applied were:(a) there is no support in the contractual documentation for the proposition that ISL’s services to policyholders fall within Item 1 of Group 2 (insurance or reinsurance);(b) in order to fall within Item 4, ISL’s services comprising the provision and fitting (or the “installation”) of the Device would have to be provided by ISL acting as broker or agent in the course of acting in an intermediary capacity;(c) the act of installing the Device could be regarded as a “service of an insurance intermediary”, and would probably (“likely”) fall within Note (1)(b) [as “the carrying out of work preparatory to the conclusion of contracts of insurance”], but there is nothing in section 1 of the Policy Booklet, the TOBA or “the arrangements viewed economically and realistically” to indicate that ISL was providing this service in the course of acting “in an intermediary capacity” within the meaning of Note (2); and(d) ISL’s “overall services” could not fall within Note (1)(a) as “the bringing together” of the policyholder and the insurer, because although ISL’s role may in a general sense have facilitated the entry into the insurance contract, the service of installing the Device cannot be so categorised, and ISL was not remunerated by policyholders for bringing the parties together.[51]I find it helpful at this stage to remind myself of two general points, the first of which is encapsulated in a decision of the Supreme Court to which both sides referred us, Secret Hotels2 Ltd v Revenue and Customs Commissioners [2014] UKSC 16, [2014] STC 037 (“Secret Hotels”). The issue in that case concerned the liability for VAT of a company (“Med”) which marketed and arranged holiday accommodation through an online website. As Lord Neuberger (with whom Lords Sumption, Reed, Hughes and Hodge agreed) explained at [1]:
“The outcome turns on the appropriate characterisation of the relationship between the company, the operators of the hotels, and the holiday-makers or their travel agents (which is an English law issue), and the impact of certain provisions of the relevant European Union Directive on that relationship once it has been characterised (which is an EU law issue).”
[52]Lord Neuberger then said, at [30]:
“Where the question at issue involves more than one contractual arrangement between different parties, this court has emphasised that, when assessing the issue of who supplies what service to whom for VAT purposes, ‘regard must be had to all the circumstances in which the transaction or combination of transactions takes place’ – per Lord Reed in Revenue and Customs Comrs v Aimia Coalition Loyalty UK Ltd [2013] UKSC 15 at [38], [2013] STC 784 at [38] … As he went on to explain, this requires the whole of the relationships between the various parties being considered.”
[53]The general point upon which I place particular emphasis is the need, in any case involving contractual or other arrangements between multiple parties and identification of the relevant supplies for VAT purposes, to have regard to all the circumstances in which the transaction(s) take place and to consider “the whole of the relationships between the various parties”.[54]In a similar vein, after summarising the correct approach in domestic law to the interpretation of written agreements, and the limited circumstances in which English law permits account to be taken of the subsequent behaviour or statements of the parties as an aid to construction, Lord Neuberger concluded at [35]:
“In order to decide whether the FTT was entitled to reach the conclusion that it did, one must identify the nature of the relationship between Med, the hotelier, and the customer, and, in order to do that, one must first consider the effect of the contractual documentation, and then see whether any conclusion is vitiated by the facts relied on by either party.”
[55]My second general point, as Ms McCarthy KC rightly reminded us, is that exemptions from VAT should be strictly construed. But that is not the same thing as saying that they should be restrictively construed. The true position is more nuanced than that, as illustrated by the following typical statement by the CJEU in Case C-86/09, Future Health Technologies Ltd v Revenue and Customs Commissioners [2010] STC 1836, at para 30:
“It also follows from the case law relating to the Sixth Directive that the terms used to specify the exemptions in art 132 of [the PVD] are to be interpreted strictly, since they constitute exceptions to the general principle, arising from art 2(1)(a) and (c) of [the PVD], that VAT is to be levied on all goods and services supplied for consideration by a taxable person. Nevertheless, the interpretation of those terms must be consistent with the requirements of fiscal neutrality inherent in the common system of VAT. Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in art 132 should be construed in such a way as to deprive the exemptions of their intended effect …”
Submissions (1). HMRC[56]In his written submissions, Mr Mantle dealt with the exemption issue last, after responding to Ingenie’s grounds of appeal and setting out HMRC’s case on the second additional ground in the respondent’s notice (the argument that the non-monetary consideration identified by Ingenie was not capable of being expressed in monetary terms). It is perhaps not surprising that, having decided to deal with the issues in this order, Mr Mantle said (at para 55) that the exemption issue only arises if this court reverses the decisions of the FTT and the Upper Tribunal that there was no supply of services for consideration, and if it also rejects HMRC’s second respondent’s notice argument. But this formulation does not in my view sit easily with the overarching nature of the exemption issue, and I have already explained why I prefer to consider it first. In particular, I do not think, and I am sure Mr Mantle did not mean to imply, that the exemption issue should logically be addressed after the other issues on the appeal have been determined. On the contrary, the logical course in my opinion is to take the exemption argument first.[57]Mr Mantle next points out, correctly, that the Upper Tribunal was against HMRC on this issue solely because it concluded that the service of providing and fitting the Device provided to a policyholder by ISL was not provided by ISL “in the course of [its] acting in an intermediary capacity”, as required by Item 4(b) and Note (2). In so concluding, submits Mr Mantle, the Upper Tribunal erred in law.[58]All the other requirements of Item 4, says Mr Mantle, are satisfied on the facts. First, there is no dispute that at the relevant time ISL was an insurance broker or agent (or, in short, “an insurance intermediary”). Secondly, the Upper Tribunal rightly considered it possible to regard the service in question as a “service of an insurance intermediary” within Item 4, interpreted in accordance with Note (1). Item 4 and Note (1) should be interpreted consistently with article 135(1)(a) which exempts “…[insurance] related services” performed by insurance brokers and agents. Thirdly, an exempt service of an insurance intermediary may fall within more than one sub-paragraph of Note (1). The Upper Tribunal relied at this point on Note (1)(b), but it could equally well have relied on Note (1)(c).[59]With regard to Note (1)(b), HMRC point out that the Device is not actually installed in the policyholder’s car until shortly after the insurance contract commences, but the obligation upon ISL to provide and fit the Device is in practice a necessary prelude to conclusion of the contract.[60]As to the critical question whether ISL was acting in an intermediary capacity when supplying the service, HMRC say that the Upper Tribunal fell into error when it saw significance in the fact that there was no support in the documentation for concluding that ISL’s services to policyholders fell within Item 1 of Group 2. Neither side had sought to rely on Item 1 or to contend that ISL supplied insurance to anyone. In itself, this apparent misapprehension might not have mattered, but it had the unfortunate effect, submits Mr Mantle, of leading the Upper Tribunal to address the supply of services under Item 4 without having proper regard to the overall scheme of the relevant arrangements for VAT purposes, including in particular the terms of the Covea Business Agreement (and the other similar agreements between ISL and the insurers on its panel).[61]In this connection, say HMRC, it is highly material to the question whether ISL was acting in an intermediary capacity that under the Covea Business Agreement ISL was expressly obliged to act as an intermediary between the insurer and policyholders, both before and after the conclusion of the contract of insurance. Indeed, ISL is defined as “the Intermediary” in the Covea Business Agreement itself, and the 2016 TOBA begins by saying, with reference to ARL and/or ISL, “We are an intermediary acting on your behalf offering products and services from insurers to meet your requirements … [ISL] introduces you to [ARL] who will arrange and administer your policy of insurance.”[62]More generally, HMRC also make the point that Ingenie’s argument on the consideration issue depends on establishing that what the policyholder does in return for ISL’s supply of the service of provision and fitting of the Device is to enter into the contract of insurance with the insurer. If made good, that argument further illustrates the close connection between the installation of the Device by ISL and the entry into the contract of insurance by the potential customer who thereby becomes the policyholder.[63]In sum, if section 1 of the Policy Booklet and the 2016 TOBA are properly viewed in the context of the arrangements as a whole, including in particular those relating to the provision and installation of the Device in the agreement between ISL and the insurer, the only economically realistic conclusion, say HMRC, is that ISL was acting in an intermediary capacity when supplying the relevant service to the policyholder. (2). Ingenie[64]It is unfortunate that we do not have the benefit of any written submissions for Ingenie in relation to the exemption issue. Since the issue was raised in this court only in HMRC’s respondent’s notice, it is unsurprising that Ms McCarthy KC said nothing about it in her skeleton argument in support of the appeal. But the service of the respondent’s notice made it clear that the issue was still a live one, and that HMRC had not abandoned it in the light of the UT Decision. Moreover, the exemption issue had featured prominently in HMRC’s written submissions before both Tribunals, although only the Upper Tribunal had dealt with it. In those circumstances, one might expect that Ingenie would have applied for permission to file a supplementary skeleton argument to deal with the grounds raised in the respondent’s notice, but (for whatever reason) this was never done. Had such an application been made, I see no reason to doubt that it would have been granted, probably by consent. Indeed, the filing of a respondent’s notice raising issues not covered by the grounds of appeal is a classic example of a case where a supplemental skeleton argument from the appellant is in principle not only permissible, but nearly always desirable. Ingenie and its advisers should also have been aware that the court might wish to “promote” the issue so that it was taken first, rather than last, in the analysis of the arrangements between the parties, given its overarching nature.[65]That said, we have to do our best with the material before us, which of course includes the excellent oral submissions made by Ms McCarthy KC in reply during the afternoon of the second day of the hearing. She wisely devoted nearly all of the limited time available to her to the exemption issue.[66]As I understood her submissions, the main points which Ms McCarthy KC made may be summarised as follows:(1) Ingenie accepts that many services provided by ICS to the insurer are in principle likely to be exempt, but Ingenie does not accept that the services in question (comprising the provision and fitting of the Device) were provided to the insurer as well as to the policyholder. Ingenie relies in this context on the reasoning of the Upper Tribunal in [101] of the UT Decision, where it agreed with the FTT that policyholders did not give non-monetary consideration for the supply, essentially because such an analysis would involve “an impermissible element of double counting”.(2) The Upper Tribunal said this in [101]: “101. We agree with the FTT. In our opinion, the correctness of the FTT’s conclusion, and the lack of commercial substance to ISL’s analysis, becomes clearer the more one stands back and considers the contractual documentation as a whole, rather than just Part One of the Policy Booklet. The FTT identified one aspect of the transaction as a whole as the primary rationale for a policyholder, which was to obtain insurance, and do what was necessary to do so. Although not expressed in these terms by the FTT, we consider that ISL’s analysis for VAT purposes effectively involves an impermissible element of double counting. That is not only the case from the perspective of a policyholder. It is also because the supplies in relation to the Device which are said by ISL to be made to policyholders for consideration are in all material respects supplies which ISL already contracts to make to the insurer under the Covea Business Agreement. Moreover, in terms of the price to be received by ISL for those supplies, ISL earns its return by being paid its commission by the insurer out of the premiums received: see paragraphs 59 and 63 above summarising the FTT’s findings. That does not mean it was impossible for ISL also to make a separate supply to a separate person in relation to the same activities, and be paid twice (once in money and once in non-monetary consideration), but the wider picture does not lend support to ISL’s contractual construction, which asserts that, notwithstanding the absence of explicit wording, that was the effect of Part One of the Policy Booklet”.(3) In order to make out a case that the provision of the relevant services formed part of an overall exempt supply viewed as a whole, a detailed examination of all the elements of that supply, and how they fell within the scope of Item 4, would be needed. It would then be necessary to ask which element(s) of the supply predominated, and the answer would be that the predominant element(s) went beyond the proper scope of the exemption. Ms McCarthy suggested that this exercise would require a detailed examination of case law, for which neither side had come prepared.(4) ISL was remunerated under the arrangements for going out into the market, in its role as a broker or agent, and obtaining the desired telematic insurance for customers. That remuneration took the form of the commission payable to ISL out of the premium. But it does not follow, and no authority says, that all the other activities of ISL must be treated in the same way. The supply of services with which we are concerned was a supply made by ISL to policyholders, and to nobody else. That is the beginning and end of what the policyholder has paid for in return for the £150 element of the premium.(5) The effect of the wording of article 135 and Item 4 is that a supply is exempt only if the supplier is an insurance intermediary in relation to that particular supply. This condition is not satisfied on the facts of the present case, and the provisions of the 2016 TOBA provide no assistance.(6) The starting point for any analysis is that exemptions must be strictly construed.(7) The effect of Item 4(b) and Note (2) is that, to be exempt, the supplier must be acting “in an intermediary capacity” in relation to the services in question. Section 1 of the Policy Booklet is not concerned with such services, but only with the supply and fitting of the Device. This was essentially what the Upper Tribunal rightly held at [45] to [50] of the UT Decision.(8) The only obligation which ISL had in relation to the bringing together of a customer and an insurer was owed to the insurer, not to the customer/policyholder. ISL owed no obligation whatever to the customer to find suitable insurance for him.(9) ISL could not simultaneously be an agent for both the insurer and the policyholder. Its role in relation to the provision and fitting of the Device was simply to act as a provider of the requisite technology, and this is reflected in section 1 of the Policy Booklet. There is no support, as a matter of principle or authority, for the proposition that ISL’s admitted acting for the insurer in an intermediary capacity carries over into the supplies made to the policyholder in accordance with section 1 of the Booklet.(10) What ISL did in providing the services could not be “bringing together” the parties with a view to insurance or work “preparatory to” such insurance within the meaning of Note (1)(a) and 1(b) respectively because the services were not provided until after the contract of insurance was entered into.

Discussion

[67]These submissions were advanced by Ms McCarthy KC with her customary skill and clarity, but I find them unconvincing.[68]The starting point, as Secret Hotels reminds us, is to analyse the contractual arrangements between the parties as a matter of English law and to have regard to the totality of the circumstances in which the relevant transactions took place. At a high level of generality, we are concerned with the role of ISL in facilitating the promotion and sale of a specialised form of motor insurance designed by Ingenie to appeal to younger drivers who might otherwise find the cost of obtaining suitable insurance burdensome or even prohibitive. Viewed from the perspective of the prospective customer for such insurance, the provision and fitting of a Device in the insured vehicle is an essential component of the insurance for which the customer pays the premium to the insurer. The Device provides the necessary technology upon which this type of motor insurance depends, but its provision is not an end in itself (although it may have some incidental advantages, such as enabling the vehicle to be located if it is stolen). As the FTT said at [28], “the policyholders saw the policy as a single transaction with a single premium”. In my view it is of cardinal importance not to lose sight of the simple point that telematics car insurance is a form of motor insurance provided in return for an annual premium, designed to be attractive to younger drivers in a competitive market.[69]In my judgment there is nothing in the contractual nexus I have described which, as a matter of English law, detracts from an overall analysis of the arrangements in those or similar terms. In particular, the Covea Business Agreement sets out the terms of the relationship between Covea as the insurer on the one hand and ISL as the intermediary between Covea and policyholders on the other hand, both before and after a policy is concluded. The intermediary role of ISL has elements which would naturally be described as the work of an insurance broker, introducing prospective clients for telematics insurance to Covea which provides such policies, but the role also includes other elements of work as an insurance agent, for example acting as Covea’s agent (“on Covea Insurance’s behalf”) for the purposes enumerated in clause 3.1 and parts of clause 4, but not, subject to express provision to the contrary, acting as agent for the policyholder: see, for example, clause 4.3.13 (ISL deemed to be an agent of the insured for the purposes of receiving certain information from an insured) and contrast clause 4.3.14 (duty of ISL to inform Covea Insurance immediately on becoming aware of any material non-disclosure by the insured, where ISL would plainly not be acting as agent of the insured when transmitting the information to Covea Insurance).[70]Section 1 of the 2015 Policy Booklet was clearly intended to set out contractual terms that would be binding between ISL and the policyholder. Despite some suggestions to the contrary made by Mr Mantle in his oral submissions, I see no reason to doubt that section 1 was intended to have contractual force, or that it did so at the latest by the time the policy had been implemented (although the precise analysis in terms of offer and acceptance is not entirely clear, and was not dealt with explicitly by either Tribunal). The introductory words (“For this section only, this contract is between you and [ISL]” ) could hardly be more explicit, and it would be a strong thing to hold that such a statement in a customer-facing document promulgated by a regulated insurance intermediary did not have its stated effect, or was a mere statement of future intent which never became binding on either party. Thus, I consider that ISL clearly bound itself to the policyholder to arrange for the Device to be fitted to the car, quite apart from the obligation to do so which ISL already owed to the insurer. This obligation is then reflected in the relevant part of the much longer section 2 of the Booklet: see [34] above.[71]The 2016 TOBA is harder to fit with any confidence into the wider contractual framework, partly because some of its terms are difficult to interpret or seem to duplicate material found elsewhere, and partly because it is unclear precisely how it is said to have become incorporated into the contractual relationship between policyholders and ISL and/or ARL. It appears, however, that it was one of the documents which a prospective customer was given the opportunity to download during the “customer journey” using the ISL website, and (as Mr Proctor-Wilton explained) it was also one of the documents sent to the policyholder with the welcome letter. The relevant enclosure is described in the sample welcome letter in our bundle as “Our terms of business”. Neither Tribunal seems to have doubted that, by one route or another, the TOBA did become contractually binding on the policyholder, and with some hesitation I am prepared to proceed on that footing. To my mind, the main points that emerge from this document are the explicitly intermediary role of ISL/ARL, and the recognition that, in some respects at least, ISL/ARL are acting as the policyholder’s agent, although in other respects (such as the collection of premiums) they act as the insurer’s agent: see [35] above.[72]Turning to the statutory language, and beginning with the PVD, it seems to me an entirely natural use of language to describe the relevant activities of ISL as “related services performed by insurance brokers and insurance agents” within the scope of article 135(1)(a). The services were primarily devoted to the promotion, implementation and subsequent administration of “black box” insurance policies underwritten by the insurer, and no such policy could be implemented without the provision and fitting of a Device in the policyholder’s car. Its provision and fitting were therefore integral and essential features of this particular kind of motor insurance, and by the same token the provision and fitting were services which not only related to, but were an indispensable element of, or precondition to, the main transaction of insurance itself. It was telling, in my view, that Ms McCarthy KC was unable to refer us to any EU case law which would cast any doubt on the legitimacy of a simple common-sense analysis along these lines.[73]The more detailed language of the corresponding exemption in UK domestic law in VATA 1994 seems to me to point clearly in the same direction. The terms of Item 4 in Group 2 of Schedule 9, read initially without the further elucidation provided by the Notes, are on the face of it comfortably satisfied. ISL is clearly “an insurance broker or insurance agent”. The services which it provides to the insurer and/or the policyholder in relation to the installation of the Device are services of an insurance intermediary, which are related to an insurance transaction which is finally concluded (namely the policy entered into by the customer with the insurer) and they are provided by ISL in the course of its acting “in an intermediary capacity”. It could hardly be otherwise, when it is remembered that the type of insurance for which ISL is acting as an intermediary is black box insurance which depends for its operation on the provision and fitting of a functioning Device, and ISL is contractually bound both to the insurer and to the policyholder to do this.[74]Note (1) then explains what is meant by “services of an insurance intermediary”. In my view, the relevant services fall within (b) as “the carrying out of work preparatory to the conclusion of contracts of insurance”, or alternatively within (c) as “the provision of assistance in the administration and performance of such contracts”. The only possible objection to the application of (b) is the temporal point that the Device is not installed until some days after the contract of insurance has been concluded. But I am satisfied that a strictly temporal construction of that nature would be unwarranted, since the insurance cannot operate as intended unless and until the Device has been fitted. The paragraph should therefore be interpreted as extending to work which is preparatory to the proper functioning of this type of insurance contract. And even if that is wrong, the services would in my opinion fall within the very broad wording of (c) as providing assistance to both the insurer and the policyholder in the administration and performance of the contract, because without such assistance the insurance could not function at all in the way it was intended to operate.[75]As to Note (2), I consider that ISL was clearly acting in an intermediary capacity when it provided and fitted the Device, because this was done in the course of its contractually agreed activities as an intermediary between the insurer and an insured person, namely the policyholder. It was ISL which first introduced the prospective customer to the insurer, and the sole purpose of the introduction was that the customer should take out a telematics policy of motor insurance with the insurer. The supply and fitting of the Device formed an integral part of that composite transaction.[76]As I have explained, the Upper Tribunal rejected HMRC’s case on the application of the exemption for the sole reason that it did not consider that ISL was acting in an intermediary capacity when it provided and fitted the Device: see [57] above. For the reasons I have given, I respectfully disagree with the Upper Tribunal’s conclusion on this crucial point. Its error, in my view, was to over-compartmentalise the services of provision and fitting of the Device, and to lose sight of the overall picture. The Upper Tribunal said at the end of [47], quoted above, that it could find no indication in section 1 of the Policy Booklet, the TOBA, or the “arrangements viewed economically and realistically” that ISL was providing this service in the course of acting in an intermediary capacity, as that requirement is explained by Note (2). I can only say that, in my view, the opposite conclusion is the one that accords with the economic substance and reality of the tripartite relationship between ISL, the insurer and the customer, and this is reinforced by the inclusion in the commission paid to ISL of the £150 attributable to the Device as well as the 10% element of the premium referable to ISL’s other services as an intermediary: see [28] above, and clause 9 of the Covea Business Agreement. I do not accept the point made by the Upper Tribunal at [48], where they agreed with a submission apparently made by Ms McCarthy KC that “ISL is not remunerated by policyholders for any bringing together of the parties”. To the contrary, it seems to me that the 10% element of the commission was (among other things) designed to do just that, and it was indirectly funded by the premiums paid by the policyholders.[77]I also find no assistance in this context from the “impermissible element of double counting” which the Upper Tribunal diagnosed in [101] of the UT Decision, when giving its reasons for agreeing with the FTT that policyholders did not give non-monetary consideration for the services supplied by ISL. Whatever the merits of this point may be in that context, they have no bearing that I can discern on the question whether ISL was acting in an intermediary capacity when it provided and fitted the Device to a policyholder’s car.[78]I do, however, see some force in Mr Mantle’s submission that the Upper Tribunal’s analysis in [47] of the UT Decision may have been affected by their apparent misapprehension that Item 1 of Group 2 could be relevant, when neither side had placed any reliance on it. The point is admittedly a minor one, but the error could perhaps be symptomatic of a wider reluctance by the Upper Tribunal, when focussing correctly on Item 4, to have full regard to “the entire scheme of the relevant arrangements for VAT purposes” (to quote from Mr Mantle’s written submissions at para 58).[79]More generally, I have well in mind the principle that exemptions from VAT are to be strictly construed, but (as the CJEU has said: see [55] above) this does not mean that the terms of an exemption should be construed in such a way as to deprive the exemption of its intended effect. I take the intended effect of the exemption in article 135(1)(a) of the PVD to be that the basic exemption for “insurance and reinsurance transactions” (which the relevant policies in the present case undoubtedly were) should extend to “related services performed by insurance brokers and insurance agents”, looking at the matter as one of commercial substance and reality. Since the services of providing and fitting the Devices were performed by ISL as an integral and essential element of the relevant insurance transactions, I see no difficulty in concluding that those services fall within the scope of the exemption, and, in my judgment, it would be both artificial and unrealistic to exclude them.[80]The artificiality of Ingenie’s position is further illustrated by the fact that the services in question were, in my view, provided to the insurers as well as to the policyholders. Under the policy terms, the insurers were obliged to provide the services to the policyholders. Under the terms of the Covea Business Agreement, ISL agreed with the insurers that such services would be provided. ISL was paid an additional amount of £150 when and if it provided the services to the policyholders (but not if it did not, as for example on renewal). Providing the services constituted fulfilment of ISL’s obligation to insurers so as to enable them to fulfil their obligation to the policyholders. By fulfilling the insurers’ obligation to policyholders, ISL was providing the services to the insurers, in just the same way as ARL was providing the services to ISL under its subcontract to carry out the fitting. There can be little doubt, in my view, that those services were provided to the insurers by ISL acting in an intermediary capacity. To treat the same services as being supplied to the policyholders but not in an intermediary capacity would be the height of artificiality.[81]For these reasons, I would accept HMRC’s overriding argument that the disputed supplies by ISL of the services of providing and fitting the Devices are exempt from VAT. It follows, since I understand that the other members of the court agree with my conclusion, that Ingenie’s appeal must be dismissed. It also follows that there is no need for us to consider the other issues raised by Ingenie’s grounds of appeal and HMRC’s respondent’s notice.

Disposal

[82]For the reasons I have given, I would dismiss the appeal.

Nugee LJ:

[83]I agree.

Popplewell LJ:

[84]I also agree.

Cited in 1 later judgment