The document summarizes two recent indirect tax cases. In the first case, the Court of Appeal ruled that accountancy services provided to a travel company during financial restructuring were actually provided to creditor banks, not the company, so the company could not reclaim input VAT. In the second case, the First-tier Tribunal ruled against a home builder's claim that it could reclaim VAT on white goods installed in new homes, finding the UK's VAT "blocking" legislation applied. The decisions emphasize considering who services are provided to for VAT purposes and that litigation over large sums, like the £30 million at issue in the second case, will likely continue.

1. Indirect Tax Update for week ending 25 July 2014
Just when we thought the indirect tax world was going quiet for the summer holidays, two
important decisions are released in the same week. Firstly, The Court of Appeal has
dismissed the appeal of Airtours in connection with input tax on accountancy charges and
the First-tier Tribunal has ruled against Taylor Wimpey in relation to the recovery of input
tax on white goods installed in new dwellings.
In the Airtours case (formerly My Travel), the taxpayer had paid substantial fees to an
accountancy firm in connection with work undertaken in respect of a financial
restructuring exercise. In 2001 Airtours faced a financial crisis that threatened the
continuation of its business and its own existence. It was indebted to a number of
parties and, in order for its auditors to be able to issue a non-qualified audit opinion,
the auditors required comfort that those creditors (the ‘Engaging Institutions’) would
extend existing credit facilities beyond the original terms. PwC was engaged to provide
services with a view to ultimately enabling the Engaging Institutions to continue to
provide such credit. The question before the Court was whether PwCs services were
provided to Airtours or the Engaging Institutions.
In a majority verdict, the Court has found that the services provided by PwC were, in
fact, provided to the banks. As a result, Airtours was unable to reclaim the input VAT
in question.
Comment – The decision emphasises the importance of considering to whom services
are being provided and ensuring that contracts reflect the economic and commercial
reality of the work being undertaken. It is important to consider the recoverability of
VAT on transaction costs early in the transaction process. As for Airtours, given that
there was one dissenting Judge, one would expect that this case may yet be appealed
further.
In Taylor Wimpey, the First-tier Tribunal has reached a preliminary decision on
whether VAT incurred on the installation of 'white goods' (fridges and freezers etc) by
builders of new houses can be reclaimed. The UK operates 'blocking' legislation which
prevents such recovery. Taylor Wimpey argued that the input tax 'block' did not apply
as the goods were not 'incorporated' into dwellings. Alternatively, if they were so
incorporated, they were articles of a kind which were, (or had become over the years
since the law was drafted) ordinarily installed by house builders. The Tribunal
dismissed both of these arguments.
Comment – A blow to Taylor Wimpey and a number of other cases that are stood
behind it. Given the sums involved here (approximately £30 Million), one cannot
imagine that this is the end of the litigation.
For further information in
relation to any of the
issues highlighted in this
Indirect Tax Update
please contact:
London/South East
Karen Robb
karen.robb@uk.gt.com
The Regions
Stuart Brodie
stuart.brodie@uk.gt.com
The Midlands
Mike Sheppard
mike.sheppard@uk.gt.com
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Indirect Tax Update 29/2014