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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Global Self Drive Ltd v Revenue and Customs [2005] UKVAT V19162 (12 July 2005) URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19162.html Cite as: [2005] UKVAT V19162

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Global Self Drive Ltd v Revenue and Customs [2005] UKVAT V19162 (12 July 2005)

19162

VALUE ADDED TAX – vehicle hire trader charging customers for insurance cover arranged by a policy taken out by the trader with a third-party insurer – whether the trader was making exempt supplies of insurance – Card Protection Plan v Customs and Excise Commrs. (Case C-349/96) [1999] STC 270 considered and applied – held it was – whether repayment claim for recovery of overpaid tax was invalid as a matter of form – s.80(6) and (7) VATA 1994 and regulation 37, VAT Regulations 1995 considered – held it was not – whether HMRC have a defence to the repayment claim on the grounds of unjust enrichment – s.80(3) VATA 1994 – held they have not – appeal allowed

LONDON TRIBUNAL CENTRE

GLOBAL SELF DRIVE LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: JOHN WALTERS QC (Chairman)

SHEILA EDMONDSON FCA

Sitting in public in London on 23 February 2005

The Appellant was represented by Mr. W. Webb, former Managing Director

Zoe Taylor, instructed by the Solicitor for the Customs and Excise for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION

Introduction

1. Global Self Drive Limited (the Appellant) appeals against the refusal by the Commissioners of Customs and Excise (now Her Majesty's Revenue and Customs – hereinafter "Customs") to repay an amount which the Appellant claims is overpaid VAT (see: section 80 VAT Act 1994 ("VATA")). The appeal to the Tribunal is under section 83(t) VATA.
2. The Appellant's business is the hiring out of motor vehicles to business and private customers. The terms and conditions incorporated into the standard form rental agreement and invoice used by the Appellant and put in evidence by Mr. Webb provide for a customer either to "elect to adopt the insurance cover provided by" the Appellant or to undertake to keep the hired vehicle insured (see: clauses 5.1 and 5.2 under the heading "Insurance"). In relation to an undertaking of this kind, a space appears on the form for details of "own insurance" to be inserted.
3. Two tariff schedules were also put in evidence by Mr. Webb, one styled a "rental tariff" and the other a "corporate tariff". The prices on the "rental tariff" schedule, covered daily, weekly and week-end hire and included insurance and VAT; the prices on the "corporate tariff" covered only daily and weekly hire and excluded insurance and VAT. Although at one stage Ms. Taylor maintained that the evidence showed that the prices charged by the Appellant to its customers were not adjusted if the customer did not "adopt the insurance cover provided by" the Appellant, this was submitted only tentatively and we find that the prices were adjusted according as to whether or not insurance cover was taken.
4. Until 1993 the Appellant (or its predecessor(s) in carrying on the business) had not charged VAT on any element of insurance charged to their customers. Customs had instructed that VAT should be charged in relation to insurance from 1 April 1993 and the Appellant (or its predecessor(s)) had complied with that instruction.
5. The first VAT Audit Report with our papers (in relation to Officer Haynes's visit on 22 July 2003) indicates that the Appellant's predecessor, Hillson Number 4 Limited, had queried this VAT treatment of insurance charges following the decision of the European Court of Justice in Card Protection Plan Ltd. v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270 (judgment handed down on 25 February 1999). The Appellant's predecessor took the point that any supplies of insurance made by it had been exempt, and therefore VAT had been overpaid.
6. The Appellant made a Voluntary Disclosure of Errors on VAT Returns on 23 October 2003 claiming that £30,414 VAT was repayable. A visit was made to the Appellant on 24 February 2004 by Officer Peters (who gave evidence to the Tribunal). As a result of a point taken by Customs that in any event they would not pay a claim for repayment of VAT to the extent that it would result in the Appellant's unjust enrichment, the Appellant reduced the amount of the claim to £19,183.58. That is the amount in issue in this appeal.
7. Officer Peters wrote to Mr. Morrison of the Appellant (who also gave evidence to the Tribunal) on 1 March 2004. He said: "I can confirm that under the terms of your contractual agreements the insurance charge qualifies as an exempt supply under the VAT Act 1994, Sch. 9, Gp. 2". However he went on to say that a claim for repayment of VAT, even after the reduction to £19,183.58, would unjustly enrich the Appellant, and therefore that the claim was refused in total. (Section 80(3) VATA provides that Customs can raise unjust enrichment as a defence to a claim for repayment of VAT.)
8. Mr. Morrison indicated dissatisfaction with this decision and it was reconsidered by Officer Peter's manager, Officer Robson, who upheld Officer Peter's decision. Following the Appellant's initiating appeal proceedings in this Tribunal, the decision was reviewed by Mrs. Semple, a Senior officer on the Central Region Appeals Team. (She also gave evidence to the Tribunal.) Mrs. Semple confirmed the refusal of the claim to repayment on the grounds of unjust enrichment, but added two further grounds (which are logically prior to the unjust enrichment point), first, that there has been no overpayment of VAT because the insurance element was part of a standard-rated supply, and second that even if there has been an overpayment of VAT, no repayment can be made because the claim submitted by the Appellant was not valid.
9. Because of the point taken by Mrs. Semple that the insurance element was part of a standard-rated supply, she withdrew the confirmation given by Officer Peters in his letter dated 1 March 2004 that the insurance charge qualifies as an exempt supply and instructed the Appellant to account for output tax on the whole of its supplies, whether or not a separate charge for insurance is itemised, with effect from the date of her letter (2 August 2004).
10. The three points taken by Customs at the hearing before the Tribunal were therefore (1) that the Appellant made no exempt supplies of insurance (and therefore there had been no overpayment of VAT); (2) that in any event the claim for repayment was invalid; and (3) that any valid claim may be refused by Customs on the grounds of unjust enrichment.
11. At the start of the hearing Mr. Webb, on behalf of the Appellant, agreed that the Motor Fleet Policy issued to the Appellant by Brit Insurance Limited ("Brit") and dated 11 September 2003 should be taken to contain an accurate description of the insurance cover in place at all material times. This agreement was made, notwithstanding the production to the Tribunal by Mr. Webb of a letter from Goss & Co., Insurance Brokers dated 22 February 2005 which mentioned policies taken out with Zurich Insurance and Compucar Insurance Services, which provided cover for periods before the policy with Brit was taken out and suggested that the terms of the cover under those policies might have been different from the terms of the policy with Brit. In the preparation for the appeal, Customs had been provided only with the Brit policy and had prepared their case on the basis that it was the only policy in force at all material times.

The first issue: has the Appellant made exempt supplies of insurance?

12. The exemption for "insurance transactions" is provided by Article 13B(a) of the Sixth VAT Directive 77/388/EEC, which is given effect by section 31 and item 1, Group 2, Schedule 9, VATA. Group 2, in relation to the exemption for insurance and reinsurance transactions, was subject to detailed amendment with effect from 1 January 2005. However the point taken by Customs does not relate to the detailed wording of the UK legislation, but to the interpretation of the expression "insurance transactions", as used in the Directive, appearing in the Court of Justice's decision in Card Protection Plan.
13. In its answer to the Question which is relevant for these purposes (Question 3), the Court of Justice held as follows:

"art 13B(a) of the Sixth Directive is to be interpreted as meaning that a taxable person, not being an insurer, who, in the context of a block policy of which he is the holder, procures for his customers, who are the insured, insurance cover from an insurer, who assumes the risk covered, performs an insurance transaction within the meaning of that provision." (ibid. paragraph 25)

14. Customs take the point that the insurance arrangements taken out by the Appellant with Brit do not amount to a block policy and therefore any provision by the Appellant to its customers of insurance cover is not an insurance transaction within article 13B(a) and so is not an exempt supply. This submission is made in the context of Customs' policy statement at paragraph 2.5 of Notice 701/36 "Insurance" (May 2002). The relevant part of paragraph 2.5 is as follows:

"Following the ECJ decision [in Card Protection Plan], we regard supplies made by block policyholders as being insurance transactions for the purposes of the VAT exemption even though they would not be seen as insurance for regulatory purposes. This means that block policyholders are acting as principals when they are effecting insurance transaction rather than as intermediaries arranging supplies of insurance."

15. There follows in Notice 701/36 an explanation of what Customs mean by "block policy" in this context.
16. Ms. Taylor's submission, for Customs, was that whether or not there is a supply of insurance on Card Protection Plan principles depends on the taxpayer's insurance policy in question being a "block policy".
17. She contended that the Appellant's policy with Brit was not a "block policy" because the policy did not enable the Appellant to provide insurance cover for its customers, instead it enabled the Appellant to supply insured vehicles to its customers. She supported this argument by submitting that the policy makes no mention of the Appellant's customers, that the premium is not calculated by reference to the number of customers or the types of characteristics of customers, and that customers' personal risk is not referred to in the policy and is not insured by it.
18. We examined the policy taken out by the Appellant with Brit, as Mrs. Semple had examined it preparatory to reviewing Officer Peters's decision. It is a policy under which Brit, in consideration of the premium paid, agrees to indemnify the Appellant, its Administrators and Assigns against loss, damage or liability as set out in the policy, which provides cover.
19. Under section 1 (Liability to third parties) the Appellant's liability in respect of death, bodily injury and damage to property caused "out of the use of the insured vehicle" is insured. The term "insured vehicle" is defined to include any motor vehicle the property of the Appellant with certain immaterial exclusions. Section 1 also contains, under the heading "Cover provided for other people", insurance (for liability to third parties) of "any person who has entered into a Hire Contract [undefined] with the Policyholder [the Appellant] for the hire of the vehicle [viz: an insured vehicle] other than any person excluded by an endorsement, exception or condition of this Insurance". It was not suggested that these words of exclusion were relevant. Section 1 also provides cover to (amongst others) any person in the Appellant's employment, "whose employment is engaged in the letting or hire of vehicles by the Policyholder [the Appellant] and who is driving on the order or permission of the Policyholder". There are various exceptions to the cover provided by section 1, but none of them appear to be (or were suggested to be) relevant.
20. The general conditions of the policy include (at paragraph 12) provision that "premiums shall be payable on the basis of bordereaux/declarations supplied by you [the Appellant] in respect of rental revenue, number of vehicles declared or number of hire days as agreed by [Brit]".
21. The policy schedule states that the persons entitled to drive include "any person who has entered into a Hire Contract with the Policyholder [the Appellant] for the hire of the vehicle" and any person in the Policyholder's employment, "whose employment is engaged in the letting on hire of vehicles by the Policyholder and who is driving on the order or with the permission of the Policyholder" (wording which mirrors the cover provided in section 1 as recited above). The schedule states that "Use" is "use for business purposes by any person to whom the vehicle is let on hire by the Policyholder [the Appellant], use for the Policyholder's business as Self Drive Hire/Courtesy/Credit Hire operators, or use for social, domestic and pleasure purposes by any person mentioned above [persons entitled to drive].
22. This examination of the Appellant's policy with Brit persuades us that the policy is a "block policy" as that term was used by the Court of Justice in Card Protection Plan. In particular Ms. Taylor's submissions that the policy makes no mention of the Appellant's customers and that customers' personal risk is not referred to in the policy and is not insured by it are simply not borne out by the terms of the policy. By section 1 of the policy the Appellant's customers are specifically included in the persons insured, and their liability for death, bodily injury and damage to property caused out of the use (for business, social, domestic or pleasure purposes) of a hired vehicle is covered. Although the premium is not calculated by reference to the number of customers or the types of characteristics of customers, it is apparently payable by reference to rental revenue, number of vehicles declared or number of hire days, which is an alternative way of relating the premium to the use of the vehicles by the Appellant's customers and does not in our judgment invalidate the conclusion that the policy, being a "block policy" enables the Appellant to provide insurance cover for its customers, as opposed to enabling it to supply insured vehicles to its customers.
23. We therefore reject Ms. Taylor's submissions on this issue and hold that the Appellant has made onward supplies, which include at least an element of insurance.
24. Thus the question arises as to whether the element of insurance is itself the subject of a supply, which would be exempt, or whether, instead, it is to be regarded as ancillary to a principal supply of car hire, applying the principles dealing with the distinction between independent supplies and a composite supply which were also laid down by the Court of Justice in Card Protection Plan (in those parts of the judgment dealing with Questions 1 and 2).
25. First, we must consider the essential features of the transaction (between the Appellant and its customer) to determine whether the Appellant supplies the customer, being a typical consumer, with several distinct principal services or with a single service (ibid. paragraph 29).
26. If we were to find that a single service was supplied, we would need to consider whether 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 (ibid. paragraph 30). In this context we bear in mind that 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 (ibid. paragraph 30).
27. In the light of our finding (see: paragraph 3 above) that the Appellant's prices were adjusted according to whether or not a customer "adopted the insurance cover provided by" the Appellant, it is in our judgment clear that the essential features of the transaction disclose that, where a customer does adopt the insurance cover provided by the Appellant, there are two distinct principal services supplied, namely vehicle-hire and insurance. The question of whether the insurance is ancillary to the vehicle-hire (or vice versa) does not therefore arise. We reject Ms. Taylor's principal argument in oral submissions on this point to the effect that the supply of insurance was ancillary because no-one would buy insurance without hiring the vehicle. That is the wrong test: we have to decide whether the essential features of the transaction indicate that a customer intends to purchase two distinct services of insurance and vehicle-hire (Card Protection Plan, judgment of the Court of Justice, paragraphs 29 and 31). In contrast, Ms. Taylor was urging us to consider whether a customer's motivation for buying insurance was that he was already buying vehicle-hire.
28. We therefore hold that the Appellant has been making exempt supplies of insurance.
29. However before leaving this part of the case we express our view that the Commissioners' submissions on the first limb of this issue have placed too much emphasis on the need for a "block policy" as featured in the facts of Card Protection Plan, as a precondition for supplies by a person who is not an insurer constituting insurance transactions within the exemption in article 13B(a). We consider that this approach implements the ratio decidendi in Card Protection Plan too narrowly. 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. Indeed (although it was not a matter of evidence) we assume that the premiums paid by the Appellant on the Brit policy attracted insurance premium tax and, if our decision on this issue had been in favour of Customs, exactly such an incidence of double taxation would have been demonstrable.

The second issue: whether the claim for repayment of overpaid VAT was invalid

30. Ms. Taylor founds her submissions on the invalidity of the Appellant's claim on section 80(6) and (7) VATA and regulation 37 of the VAT Regulations 1995 SI 1995/2518.
31. Section 80(6) and (7) VATA are in the following terms:

"(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases.

(7) Except as provided by this section, the Commissioners shall not be liable to repay any amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them."

32. Regulation 37 of the VAT Regulations 1995 (which makes the prescription envisaged by section 80(6)) is in the following terms:

"Any claim under section 80 of [VATA] shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that amount was calculated."

33. Ms. Taylor's submission is that the Appellant has failed to state the method by which it has calculated the amount of the claim, merely asserting that there has been an overpayment of VAT of £34,414, subsequently reduced to £19,183.58. She criticises the Appellant for basing the amount of the claim on a number of unsubstantiated assumptions and not producing any documentary evidence to support the claim.
34. From the evidence before the Tribunal, both documentary and oral (from Officer Peters and Mr. Fraser Morrison, the Company Secretary of the Appellant) we find as follows.
35. The original claim of £30,414 VAT overpaid was the result of a calculation of the element of the charge for insurance made in respect of contracts of hire which took place covering the period from 7 October 2000 to 6 October 2003. That calculation is to be found at pages 27 and 28 of the Commissioners' bundle before the Tribunal. There is a difference between the figure of £30,531.22 VAT overpaid produced by that calculation [see: page 28 of the bundle] and the lower figure claimed. We received no explanation of that difference and consider it immaterial. As we have already recorded (at paragraph 6 above), a Voluntary Disclosure of Errors in the amount of £30,414 was made by the Appellant on 23 October 2003. This prompted the visit of Officer Peters on 24 February 2004.
36. After submission of the Voluntary Disclosure of Errors, and before Officer Peters's visit, the Appellant had received a letter dated 3 December 2003 from Customs National Advice Service (Mark Gammon) in which, among other matters, the Appellant was informed that the Voluntary Disclosure team would not pay a claim that would result in the Appellant's unjust enrichment "for example, where you have passed on the VAT on [sic] to your customer but are unable, or do not intend, to pass on to them any repayments resulting from the claim".
37. In an attempt to remove any element of unjust enrichment from the original claim for £30,414, the Appellant (by Mr. Morrison) reduced the claim to £19,183.58. This reduction was made before Officer Peters's visit, and was examined by him during his visit.
38. Mr. Morrison had examined 4,500 rental agreements totalling charges of £174,464 relative to insurance. Details of these agreements were contained in a computer-generated report listing all the rental agreements in which insurance had been supplied, which was over 90 pages long and listed approximately 50 agreements on each page. The original claim had been based on a repayment of 17½% of this amount (ie. £30,531.22) – see: above, paragraph 35. Mr. Morrison intended to remove from the claim the VAT relative to the insurance supplied to customers who were registered for VAT. There was no ready way to do this and the method he adopted was to examine in detail agreements where the insurance charge was more than £100. He produced a schedule of these, analysed as between company customers and other customers (termed "Joe Public"). He thus made the assumption that any VAT-registered customers would be companies.
39. This analysis showed that of the £51,751 charges made by the agreements examined, £29,360 related to agreements with company customers and £22,391 related to agreements with other customers. He estimated that 80% of company customers were VAT registered and proposed to remove from the claim the VAT element of the insurance charge made to those customers. He calculated this at £23,488 at 17½ per cent (ie. £4,110.40). As to the balance of the rental agreements (those where the insurance charge was less than £100), these totalled £119,643 (a balancing figure – not explained to us – of £3,070, described on Mr. Morrison's schedule as "error", is needed to reconcile the figure of £119,643, added to the figure of £51,751, already mentioned, to reach the original total of £174,464). Mr. Morrison took this figure of £119,643 and made the assumption that 40 per cent of these agreements were with companies (and 60 per cent with customers who were not companies – "Joe Public"). This gave a figure of £47,857 for insurance charges on small bills to companies. Again, Mr. Morrison assumed that 80 per cent of the customers concerned were VAT registered, and he calculated the VAT element of the insurance charge made to those customers as 17 per cent of 80 per cent of £47,857 (ie. £6,699.98). The total of these two amounts, £4,110.40 and £6,699.98 (ie. £10,810.38) approximates to the reduction in the claim actually made (from £30,414 to £19,183.58 – a reduction of £11,230.42). The difference between the greater amount of the reduction actually made in the claim (£11,230.42) and the lesser amount produced by these calculations (£10,810.38) was not adequately (or at all) explained to us.
40. Officer Peters considered Mr. Morrison's calculations during the visit on 24 February 2004. He took a sample of rental agreements (under both the "rental tariff" and the "corporate tariff" – see: paragraph 3 above), which he agreed in evidence was a reasonable sample, to verify that the contents of Mr. Morrison's schedule was reasonable and accurate and was satisfied that the Schedule represented the documents "that were there" (his evidence), which we take to mean the rental agreements showing insurance charges over £100. He asked Mr. Morrison for evidence to support the two assumptions he made (namely that 80 per cent of company customers were VAT-registered and 40 per cent of the charges under £100 related to company customers). However Mr. Morrison was unable to give any documentary evidence to support these assumptions. He replied that he had made them to the best of his judgment. We considered Mr. Morrison to be a straightforward witness and have no hesitation in accepting that he did his honest best to estimate the proportion of the total charges of £174,464 relative to insurance which were made to VAT-registered customers. Officer Peters's evidence was that he did not consider Mr. Morrison's assumptions as unreasonable. His objection was that they were unsubstantiated (by reference, we infer, to documentary evidence).
41. Against this background we conclude that the Appellant's claim complied with regulation 37 of the VAT Regulations 1995. The claim was made in writing to Customs, it stated the amount of the claim by reference to Mr. Morrison's calculations, which in turn were compiled by reference to the primary records (rental agreements). The method by which that amount was calculated was made known to Officer Peters during his visit on 24 February 2004, and although that method was not communicated in writing to Customs as part of the document in which the claim was made, we do not understand Ms. Taylor to take any point on that. It was produced in response to Customs investigation of the claim. Ms. Taylor's Skeleton argument on this point states:

"It is contended that the Appellant has failed to state the method by which he has calculated the amount claimed, despite being given ample opportunity to do so. He has merely asserted that there has been an overpayment of £30,414. Although the figure claimed has subsequently been reduced to £19,183.58, the Appellant based this on a number of unsubstantiated assumptions. The Appellant has provided no explanation of the methodology used. No documentary evidence has been produced to support the claim for repayment despite the Commissioners' requests to the Appellant to support his claim."

42. We reject these contentions because the Appellant did state and explain the methodology of the claim. It is true that the claim was based (in part) on assumptions which were not substantiated by documentary evidence. But this did not amount to a failure to comply with regulation 37 of the VAT Regulations 1995. That regulation requires the claim to state the amount of the claim and the method by which that amount was calculated "by reference to such documentary evidence as is in the possession of the claimant". That wording does not preclude a claim based on documentary evidence but (in part) also based on best of judgment assumptions made by the claimant. It was Mrs. Semple's (in our judgment, erroneous) view that it did, which led her to raise this point in her letter dated 2 August 2004. We therefore decide this issue against Customs and hold that the Appellant's claim for repayment of VAT was in formal terms valid.
43. We record that in argument Ms. Taylor on instructions accepted that the Tribunal, in hearing an appeal under section 83(t) VATA on a point relating to compliance with regulation 37, VAT Regulations 1995, accepted that (having regard to section 84(10) VATA) the Tribunal had jurisdiction to examine the question of whether a claim for repayment was properly evidenced.

The third issue: whether Customs have a good defence to the claim, on the basis that any repayment would unjustly enrich the Appellant

44. We now turn to the point which was originally the only point in issue: would a repayment of VAT in the circumstances of this case unjustly enrich the Appellant?
45. Ms. Taylor accepts – what is established by the authorities, for example Customs and Excise Commissioners v National Westminster Bank plc [2003] STC 1072 – that it is for Customs to establish the defence of unjust enrichment. Thus the Appellant has no obligation to prove that it has not passed on the burden of VAT on the supplies of insurance and there is no presumption that it has done so, simply because its prices included VAT (see: paragraph 58 of the Opinion of the Advocate-General (Jacobs) in Weber's Wine World v Abgabenberufungskommission Wien (Case C-147/01), cited by Jacob J in National Westminster Bank plc, ibid. at [26]).
46. The burden of proof thus imposed on Customs is an obligation to raise a prima facie case of unjust enrichment. If they are able do so, the Tribunal will consider all the evidence in reaching a conclusion on the facts as to whether a repayment will cause unjust enrichment. In performing this exercise we will draw reasonable inferences from the Appellant's conduct in Customs' investigation of this issue, so that we will take all available relevant evidence into consideration to reach a fair decision on whether the Appellant bore any part of the burden of the amount paid as VAT on the supplies of insurance or suffered any economic loss as a result of the imposition of the obligation to pay it (cf. paragraph 60 of the Advocate-General's Opinion and paragraph 116 of the judgment of the Court of Justice in Weber's Wine World).
47. We find the following facts relevant to this issue. Before 1993 the Appellant's predecessor(s) in carrying on the business of vehicle hire had not charged VAT on insurance provided to their customers, but, following a direction from Customs this practice was changed with effect from 1 April 1993 (see: paragraph 4 above). As a matter directly related to this direction, the Appellant's predecessor incurred expenditure (of an amount which was not specified or proved to us) in reorganising the computer systems dealing with invoicing and VAT accounting. The change was instituted on 1 April 1993 and the prices charged by the Appellant's predecessor were not adjusted at that time to recoup from customers the additional obligation in respect of output VAT on insurance then being assumed.
48. In January 2005, Officer Robson asked the Appellant, in connection with the unjust enrichment issue in this appeal, to forward to Customs all papers that relate to the pricing of the insurance elements of the cost of car hire. He stated that he would expect any such documents to identify how the price has been set, what the cost components are and whether or not VAT is a cost component which has been passed on to the customer. Mr. Morrison replied, by a letter dated 14 February 2005:

"As we have previously explained, the company has had to absorb the VAT on insurance since our holding company was advised that VAT should be charged on insurance at a VAT inspection. Obviously due to the competitive nature of the market we tried, but were unable to, increase prices and as a result margins suffered. In hindsight it would appear that we were perhaps playing with different rules than our competitors, us charging VAT on insurance and they perhaps not doing so."

49. No documents such as were requested by Officer Robson were provided to Customs.
50. Mr. Webb suggested to us that the expenditure incurred in 1993 in reorganising the computer systems would to some extent, possibly completely, counteract any unjust enrichment that would arise from the repayment sought. We reject this submission because (a) it is unquantified; (b) it relates to expenditure incurred not by the Appellant but by a different legal person; and (c) because we are not satisfied that the expenditure is sufficiently closely related to the incorrect imposition of VAT on insurance to enable us to take it into consideration (cf. National Westminster Bank plc ibid. at [28]).
51. We accept the Mr. Morrison's evidence that in 1993, when the VAT charge was first implemented there was no increase in prices to compensate for the obligation assumed vis-à-vis Customs. We also accept that there was (at any rate in the period immediately after the change) a reduction in margins. This distinguishes this case on the facts from National Westminster Bank plc – see ibid. at [30]. Another distinction on the facts from National Westminster Bank plc is that in that case it was common ground that the unjustified tax was levied uniformly on the car-leasing trade as a whole (see ibid. at [34]): in this case the Appellant asserts that it may have been trading at a commercial disadvantage by reference to the issue of VAT on insurance, and Customs have not sought to challenge the suggestion.
52. We are not satisfied that there was a reduction in margins in the period from 7 October 2000 to 6 October 2003, with which the repayment claim is concerned. If we had been so satisfied, we would have held that the Appellant had established that it would not be unjustly enriched by the repayment sought.
53. However, as we have stated above, that is not the applicable test. It is for Customs to establish, on the whole of the evidence, that it was more probable than not that the amount paid as VAT was passed on to the Appellant's customers in the period from 7 October 2000 to 6 October 2003. As well as all the matters already referred to, we take into account that the repayment claim in this case is relatively modest in amount (which is relevant in assessing what cooperation, in terms of the provision by the Appellant to Customs of documentary proof of their not having passed on the amount paid as VAT, is reasonable and proportionate in the circumstances of the case). We conclude that Customs have failed to establish that the Appellant would be unjustly enriched by receipt of the amount claimed.

Conclusion

54. We have stated (at paragraph 6 above) that the amount in issue in this appeal is £19,183.58. We have heard no argument at all from either side as to the correctness or otherwise of this amount, as being the right amount of the repayment due on the basis that we decided (as we have) all the issues argued before us in the Appellant's favour. We considered granting liberty to both parties to apply to the Tribunal for permission to make submissions that £19,183.58 is not the right amount of the repayment due, but we decided not to do so because we consider that if the point was to be taken by either party it should have been taken at the hearing in February 2005. We allow the appeal.
55. Both parties indicated at the hearing that they would not apply for a costs order if successful. We will grant liberty to the Appellant to make an application for a costs order within 28 days of the date of release of this Decision if, having considered our Decision, it wishes to revisit this issue.

JOHN WALTERS QC

CHAIRMAN

RELEASED: 12 July 2005

LON/2004/0918