Five law lords ruled in CPP’s favour, forcing Customs to pay a settlement of Pounds 1m, plus almost Pounds 500,000 in legal costs, as reported in today’s Financial Times.
The lords ruled CPP was exempt from paying VAT since its principle business was insurance. Under tax rules services ‘related services performed by insurance brokers and agents’ are exempt from paying VAT.
Customs had demanded CPP pay Pounds 800,000 in VAT owing on business services carried out form 1989 to 1991. According to CPP lawyers, the case set a precedent for VAT exemption since the court ruled ‘that it is the type of business that matters, rather than the type of company doing it’.
Hugh Mainprice, solicitor for CPP, said: ‘Customs has been forced to concede that it is the type of business carried out that matters rather than the type of company doing it.’
The ruling will increase in importance as more companies outsource some of their business activities.
The ruling recognised CPP as an insurer, despite the fact that it does not underwrite business itself, considering this to be its primary business activity. The decision echoed a European Court of Justice opinion in 1999, and confirmed the definition of ‘single supply’ services.
Customs responded to the ruling by saying it did not expect any impact on the amount of VAT paid each year. While the ruling could lead to other businesses claiming partial exemption from VAT, the converse would also apply, it said.
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