Redrow redacted: VAT and third party consideration

This article was first published in the 20 May 2016 edition of Tax Journal.

The Supreme Court has, by a majority of 3 to 2, confirmed the earlier Court of Appeal decision that a company paying for a corporate restructuring review addressed to its major creditors was not entitled to input VAT recovery: Airtours Holiday Transport Ltd v HM Revenue & Customs [2016] UKSC 21. The majority decided that the terms of the engagement did not give Airtours a contractual right to require the report to be produced, merely an obligation to pay for its production, and as such no supply was made to Airtours.

The case exemplifies the difficulties that can arise in applying VAT to tripartite situations when determining the right to input VAT recovery. The decision of the Supreme Court again emphasises the importance of the contractual terms when considering an argument that a person paying for services, which principally benefit a third party, also receives a supply of the right to have that service provided to the third party. Nevertheless, whilst the decision has, arguably, largely settled the question of how one should approach the analysis of tripartite arrangements, it is a stark reminder of the difficulties of applying that analysis in practice.

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