Recharging Costs: Example 1
A mail order company is insured against the risk of goods being damaged in the post. The company makes a charge to the customer for “insurance” which entitles them to replacement goods in the event of damage occurring. In such cases there may well be some of the characteristics of insurance present (see VATINS2200).
- the customer becomes entitled to something (replacement goods) in the event of some occurrence (the goods being damaged); and
- there is an element of uncertainty (there is only a chance that the goods will arrive damaged)
However, under this contract of insurance it is only the trader who is the insuredparty and not the customer. This means that the trader can choose to replace the goods (depending on the commercial arrangement with the customer) but the insurance company must indemnify the trader if the risk is covered. In this instance then, the charge for insurance by the trader merely forms part of the consideration for a single supply of the goods.