N1. Sale of insurance

- Permanent health insurance v. accident/sickness insurance

- Policies of not less than 5 years are regulated as permanent health insurance (permanent because of the duration of the contract).

- Policies of less than 5 years are regulated as general insurance, accident or sickness.

Legislation:

Cases:

HMRC manuals:

IPTM6155 - Sickness disability and unemployment insurance: the regulatory position;

Commentary:

See also:

- Permanent health insurance v. accident/sickness insurance

- Mutual insurance

- Excess of amounts received over indemnities paid did not constitute profits liable to income tax in Richard Evans and Co Ltd.

Legislation:

Cases: Thomas v Richard Evans and Co Ltd (1927) 11 TC 790 (CoA);

HMRC manuals:

Commentary:

See also:

- Mutual insurance

VALUE ADDED TAX

INSURANCE PREMIUM TAX

Scope

- Contract of insurance

- Any contract of insurance is a taxable insurance contract unless it falls within an exemption (s.70(1)).

Contract of insurance (meaning)

- Construe according to common law (GB Taxi, §§16, 34).

- VAT case law not to be read across (GB Taxi, §31).

- Parliament deliberately decided not to use the VAT concept of an insurance transaction (§51).

- Concept which is better to describe than define (GB Taxi, §44).

- Three elements (a useful starting point) (GB Taxi, §§16, 34):

(1) Insured will become entitled to something on the occurrence of some event.

- Can be money or a corresponding benefit, such as a service.

(2) The event has some amount of uncertainty about it.

- Query whether it has to be outside the control of the insurer (MDU at 89 leaves this undecided).

(3) The insured has an insurable interest in the subject matter of the contract.

- These elements must be present in the contract (GB Taxi, §34).

- True effect is ascertained from substance and effect rather than its terms (GB Taxi, §§16, 34).

- Test findings against commercial and economic reality.

- "[49] Having decided that the terms of the agreement do not have the characteristics of a contract of insurance, I now need to consider whether those terms reflect commercial and economic reality. I consider that they do. The commercial and economic reality of the overall arrangement is that the appellant insures the vehicles with New India, and then supplies an insured vehicle to the drivers for which the drivers pay a rental fee for the hire of the vehicle and a separate payment to reimburse the appellant for the costs incurred in taking out the New India policy." (GB Fleet)

Contract under which benefit of insurance passed on without detailing any terms not contract of insurance

- In GB Taxi Services, the contract between T and the drivers did not set out any entitlement to a benefit upon the occurrence of an uncertain event. T took out insurance with a third party, which the drivers reimbursed T for: "Whilst it is clear that the appellant has taken out insurance for which the driver will reimburse the appellant, the agreement does not expressly oblige the appellant to include the driver under the policy." (§43).

- Held: Not a contract of insurance (but it was an insurance arrangement).

- "[38] In my view, in order to be such a contract, there must be more than simply a contract for the supply of insurance by the appellant to the drivers. The agreement between them must itself contain the essential elements of a contract of insurance, and the agreement between the drivers and the appellant clearly does not contain, on its face, the first two of the Prudential elements. It does not identify what the driver will become entitled to, nor the event which triggers that entitlement. I wholly accept that this is clearly identified in the New India policy, but the wording in that policy has not been expressly incorporated into the agreement with the drivers. There is nothing in that agreement which cross refers to the terms of the New India policy."

- Contrast with Wheels Private Hire Limited in relation to VAT where there were separate supplies of a vehicle and insurance.

Legislation: FA 1994, s.70;

Cases:

Medical Defence Union Ltd v. Department of Trade [1980] Ch 82, Megarry VC;

HMRC v. Wheels Private Hire Limited [2017] UKUT 51 (TCC), Judges Bishopp and Sinfield;

GB Taxi Services Limited v. HMRC [2020] UKFTT 507 (TC), Judge Popplewell;

HMRC manuals:

Commentary:

See also:

- Contract of insurance

- No insurance contract if indemnity is discretionary

- Even if there is a right for the exercise of a discretion to be properly considered (Medical Defence Union at 95 and 97; GB Fleet, §16(3) + §34).

- MDU concerned a company limited by guarantee of which medical practitioners became members paying varying subscriptions. The purpose of the union was conducting legal proceedings on behalf of members, indemnifying them and giving advice.

- Held: not insurance.

- "In rejecting the term "benefit" I may say that I think that one is in a different world from the world of insurance when the only contractual right is a right to have a claim fairly considered. No doubt one must not attach too much importance to the basic meaning of words; but terms such as "insure" and "assure," like "ensure," seem to me to convey the sense of making something certain, and not merely of giving a hope or expectation, no matter how well founded. When a person insures, I think that he is contracting for the certainty of payment in specified events, and not merely for the certainty of proper consideration being given to his claim that a discretion to make a payment in those events should be exercised in his favour. The certainty must be direct, and not at one remove." (at 95)

- MDU confirmed in Moreton:

- "[8] The case required the court to determine the question whether the contract between each member and the MDUL was a contract of insurance for the purposes of the Insurance Companies Act 1974. The Vice Chancellor held that, although the right to which the contract gave rise was a "benefit", it was not itself of the nature of money or money's worth. Further, it did not satisfy the requirements for a contract of insurance and, since subscriptions were unaffected by claims and the general nature of the Union's work was far removed from that carried on by those concerns generally accepted as undertaking contracts of insurance, he granted a declaration that it was not an insurance company which carried on any class of insurance business for the purposes of the 1974 Act.

[9] The claimant has not sought to challenge the correctness of this decision..."

- In Whetstone, the defendant was a discretionary mutual benefit society to whom members paid an annual subscription calculated based on the risk presented by the member's own personal dental work (§69).

- Indemnity was at the discretion of the society's Council (§10) and the member's only right was to have its request for indemnity properly and rationally considered.

- MDU applied: "[59] That approach seems to me to be entirely right, with respect, and I agree with it. Applying it to the Memorandum and Articles leads to the same conclusion as that which Sir Robert reached, that the right of a member who seeks an indemnity from MPS is to have the request considered in the exercise of the discretion of the Council of MPS or any person or body with delegated authority to make the decision."

- The case itself was a challenge to a refusal to indemnify for vicarious liability for the work of another dentist, which was rejected and PTA refused.

HMRC's view

- "The main characteristics of a contract of insurance are that the insured party must have an ‘insurable interest’ i.e., a pecuniary interest in the subject matter of the insurance and will display many or all of the following features...The insured has an absolute right to payment or assistance under a contract of insurance." (IPT03710)

- "A person (such as an employer) pays money into a trust fund. The trustees consider the payment of claims if certain events arise. There is no obligation to pay a claim, and there is thus no contract of insurance." (IPT03790)

Legislation:

Cases:

Medical Defence Union Ltd v. Department of Trade [1980] Ch 82, Megarry VC;

R (oao Moreton) v. Medical Defence Union Ltd [2006] EWHC 1948 (Admin), Newman J;

Whetstone v. Medical Protection Society Limited [2014] EWHC 1024 (QB);

Whetstone v. Dental Protection Ltd [2015] EWCA Civ 127 (PTA);

GB Taxi Services Limited v. HMRC [2020] UKFTT 507 (TC), Judge Popplewell;

HMRC manuals:

IPT03710 - Overview and the law: how to determine whether there is a contract of insurance: purpose and outline of this section;

IPT03790 - Overview and the law: how to determine whether there is a contract of insurance: discretionary trusts;

Commentary:

See also: