Liability reduced

Exemption for payments for collision damage waivers

The taxpayer supplied driving experiences in supercars. The drivers were always accompanied by a qualified instructor and the vehicles were fitted with dual control pedals.

Under the taxpayer’s business terms if a customer caused damage to the vehicle they would be liable to pay the first £3 000 of the repair costs (£2 500 plus VAT). But they could reduce this liability by making a payment of £25 to £30 before the hire period for a collision damage waiver.

The issue was whether that payment was for an exempt supply of insurance as claimed by the taxpayer or a standard-rated payment for a waiver benefit as stated by HMRC.

The First-tier Tribunal noted that until April 2016 there was no involvement of an insurance company and although that changed after this date the new arrangement did not create...