VAT not recoverable on provision of “black boxes”
9 May 2025| CATEGORIES: Court of Appeal, insurance intermediary services, irrecoverable VAT| TAGS: black box insurance, VAT appeal
In a significant decision for the insurance sector, the Court of Appeal has upheld the Upper Tribunal’s ruling in the case of WTGIL Limited v HMRC [2025] EWCA Civ 399. The case centred on whether WTGIL Limited, formerly known as Ingenie Limited, could recover input VAT on the provision and installation of telematics devices—commonly referred to as “black boxes”—in vehicles insured under policies it facilitated.
Background
Ingenie Services Limited (ISL), a member of the WTGIL VAT group, acted as an insurance intermediary, offering telematics-based car insurance primarily to young drivers. As part of the insurance package, policyholders were required to have a telematics device installed in their vehicles, which monitored driving behaviour to adjust premiums accordingly.
WTGIL claimed over £2 million in input VAT incurred between 2014 and 2018, arguing that the provision and installation of these devices constituted taxable supplies to policyholders, thereby entitling them to VAT recovery. HMRC rejected this claim, asserting that there was no direct supply for consideration between ISL and the policyholders, and that the services were related its VAT-exempt insurance intermediary services.
Legal Findings
The Upper Tribunal had previously determined that for a transaction to be considered a supply for VAT purposes, five criteria must be met:
- There must be a supply of goods or services.
- A legal relationship between the supplier and the recipient.
- Reciprocal performance between the parties.
- A direct link between the supply and the consideration provided.
- The value of the consideration must be expressible in monetary terms.
The Tribunal found that while there was a supply of services (the installation of the devices), elements 3 and 4 were missing. Specifically, there was no reciprocal performance or direct link between the installation service and any consideration from the policyholders, as they did not pay ISL directly for the devices. Instead, ISL received commissions from the insurers, which were deemed consideration for the VAT-exempt insurance intermediary services.
Furthermore, the argument for a deemed supply under Article 16 of the VAT Directive failed because ISL had not initially deducted input VAT on the devices, a prerequisite for such a deemed supply.
The Court of Appeal has now held that, in providing and fitting the devices, ISL was making exempt supplies of insurance intermediation services. The services were primarily devoted to the promotion, implementation and subsequent administration of ‘black box’ insurance policies underwritten by the insurer, and such policies could not 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 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.
Dismissing the appeal, the Court of Appeal held that the services were an integral and essential element of the relevant exempt insurance transactions, and it would be both artificial and unrealistic to split them.
Implications
Whilst the Court of Appeal has dismissed the taxpayer’s appeal, it has done so for different reasons than the Upper Tribunal. Any business providing goods as part of a service in similar circumstances should consider whether this case affects their current VAT arrangements or ability to reclaim VAT incurred.