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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Legal history: cases about recipient of supply


Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

D & K Builders & Sons (Ampthill) Ltd - VTD 4287

A couple had to pay for remedial work to be done by another builder on a house they had bought from the company. The company was ordered to pay compensation to the couple. It was not allowed to claim input tax on some of the cost of the remedial work. The tribunal held that the relevant supplies had been made to the couple who had bought the house rather than to the company.

P & O European Ferries (Dover) Ltd VTD 7846

The tribunal ruled that input tax could be claimed when the company paid the legal costs of defending a charge of manslaughter against itself and seven employees. The charges were brought after one of the company’s ferries capsized while sailing from Zeebrugge.

The tribunal held that the conviction of any of the employees would have caused severe damage to the public perception of the company’s business. It also held that, as well as having the effect of benefitting the individual employees, the costs had been incurred for the purposes of the company’s business.

Plessey Co Ltd VTD 12814

The company was taken over and its pension funds transferred to other pension schemes. Legal advice was provided to representatives of the employees affected by the change.

It was accepted that if the solicitors had supplied their services to the trustees of the pension funds the supply would have been to the company for VAT purposes. However, the supplies in this case were made to independent representatives of the beneficiaries. The beneficiaries were clients who were separately advised. Therefore, the company could not claim input tax.

Redrow Group plc 1999 STC 161

A group of house building companies set up a scheme for prospective purchasers of its houses. It used an estate agent to sell the houses those people already owned and paid the agents’ fees. It did this because most prospective purchasers could not buy a new house until they had found a buyer for their current home.

The House of Lords allowed the group to claim input tax on the estate agents’ fees. It held that the supplies had been received in connection with the business activities of the taxable person for the purpose of being incorporated within its economic activities. Someone else, in this case the prospective purchaser, also received a service as part of the same transaction. However, this does not deprive the person who instructed the service, and who has had to pay for it, of the benefit of the deduction.

Stormseal (UPVC) Window Company Ltd VTD 4538

Two associated companies arranged and paid for hotel accommodation for its self-employed subcontractors. The tribunal allowed the companies to recover input tax on the hotel bills without charging output tax to their subcontractors.

The tribunal held that there had been a supply by the hotel to the companies. However, it did not follow, as HMRC had argued, that there had been a supply by the companies to the subcontractors. The accommodation was not used for the subcontractors’ own purposes but was used solely in the course of their work.