Homeserve GB Limited v The Commissioners for HM Revenue and Customs
Homeserve, an insurance intermediary, arranged assistance insurance (such as plumbing and drainage cover) for homeowners. The insurance provided cover against repairs and an emergency response service that promised an approved engineer on site within two hours.
Under its agreement with the insurer, Homeserve arranged and administered the insurance policies and dealt with the payment of premiums, renewals and complaints. The insurer provided the cover and was responsible for contracting with a separate claims handling company.
All the marketing materials and insurance documents were careful to inform the homeowner that he would have a contract with the insurer and a separate contract with Homeserve ("to arrange and administer your policy").
The cost of the cover was stated to be "the total amount you pay as detailed in the policy documentation, which consists of the arrangement and administration fee of £14 and the premium".
The issue was whether this £14 administration fee was subject to insurance premium tax (IPT).
Under the Finance Act 1994 (as amended by the Finance Act 1997), IPT is charged on the receipt of premium by an insurer in connection with a taxable insurance contract.
A premium is defined as "any payment received under the contract by the insurer" and includes any payment "wholly or partly referable to… cost of administration" (s. 72(1)).
This definition is widened by section 72(1A), which provides: ''Where an amount is charged to the insured by any person in connection with a taxable insurance contract, any payment in respect of that amount is to be regarded as a payment received under that contract by the insurer unless … the amount is charged under a separate contract and is identified in writing to the insured as a separate amount so charged'' (s. 72 (1A) (b)).
Homeserve argued that IPT should not be charged on the £14 administration fee. The fee was consideration for arranging and administering the insurance contract. It was not a payment received by or on behalf of the insurer and it was charged under a separate contract identified in writing to the insured.
HMRC argued that there was no contract between Homeserve and the homeowner. At most, there was a three-party contract between Homeserve, the insurer and the homeowner, which could not be described as "separate".
The tribunal held IPT was payable on the £14.
Homeserve did not merely act as the insurer's agent in arranging the cover. It owed the homeowner a number of contractual duties under the terms and conditions of the cover, including finding an alternative insurer or refunding the full premium if an engineer failed to attend an emergency within 2 hours. As a result, it clearly gave the homeowner something in return for the £14 payment.
But in the context of IPT, this was not a "separate contract" from the taxable insurance contract. The tribunal was satisfied that the phrase in the Act had been specifically chosen to emphasise that the contract had to be independent or separable.
In this case, however, both contracts related to the same cover and were offered as a package. One could not be created without the other. There was considerable overlap between the services Homeserve provided to the homeowner and those it provided to the insurer in administering the insurance contract.
In addition, the price quoted to the homeowner was a single price, even though the wording of the various documents repeatedly stressed the existence of a separate contract between the homeowner and Homeserve.
The tribunal gave the phrase "separate contract" a special meaning for IPT purposes. It did not merely mean "another" contract, but one that was completely independent of the insurance contract.
Up until now, IPT has been a relatively straightforward tax, giving rise to few disputes. But this decision may have a significant impact in cases where (as here) insurers have gone to some lengths to separate the provision of insurance from the administration of the policy to reduce their IPT bill.