Taxpayer building and selling houses – Taxpayer offering to pay estate agent’s fees when purchaser sold previous home – Offer dependent on purchaser buying house built by taxpayer – Whether tax paid to agent by taxpayer was allowable input tax – Whether service supplied to taxpayer – VAT Tribunal allowing taxpayer’s claim – Court of Appeal allowing commissioners’ appeal – Taxpayer’s appeal allowed
The taxpayer, Redrow Group plc (Redrow), built houses for sale in the private sector. Most of its prospective purchasers had an existing home that needed to be sold before the purchase could proceed. Redrow therefore designed and operated a sales incentive scheme as a marketing device. Under the scheme, Redrow would instruct an estate agent of its choice and would agree a price for a prospective purchaser’s existing home. Redrow would maintain close contact with the agent to ensure that maximum effort was made to sell the house. On exchange of contracts the estate agent would send an invoice to Redrow, which only became liable to pay the agent when the purchaser completed the purchase of one of its homes. Redrow claimed that since it had received a supply of services within section 14(3)(a) of the Value Added Tax Act 1983 (now section 24(1)(a) of the Value Added Tax Act 1994), it was entitled to recover the tax paid to each agent as allowable input tax.
The VAT Tribunal allowed the claim and said that the estate agent had supplied a service to the taxpayer and the prospective purchaser. It concluded that although it was necessary to wait and see if the prospective purchaser bought a Redrow home, if he did so it could be concluded that the agent had made a supply to Redrow. The judge dismissed the commissioners’ appeal. The commissioners’ further appeal was allowed by the Court of Appeal [1997] EGCS 92, which held, considering BLP Group plc v Customs & Excise Commissioners [1995] STC 424, that, in order for the taxpayer to be able to deduct the tax paid on the services supplied, the services in question had to be “directly and immediately” linked with the taxable transaction, and the ultimate aim pursued by the taxpayer was irrelevant in that respect. It was concluded that the agent’s services were directly and immediately linked to the sale of the individual purchaser’s home, and, accordingly, it was a service provided to the prospective purchaser and not to Redrow. Redrow appealed.
Held The appeal was allowed.
1. In BLP Group plc v Customs & Excise Commissioners [1995] STC 424, the European Court of Justice could not have intended to deny the right to deduct tax in respect of goods or services that could not be “directly and immediately” linked with a particular taxable supply made by the taxpayer. It was to be read as denying the right to deduct tax in respect of goods or services that were exclusively linked with an exempt output. Accordingly, it had no bearing on Redrow’s claim to recover tax paid as allowable input tax.
2. The commissioners had taken the wrong approach by describing the services in question as those of an estate agent instructed to market and sell his client’s house and then asking to whom were those services supplied. The commissioners should have identified the payment from which the tax to be deducted formed part, and then asked the question: did the taxpayer obtain anything at all for the purposes of his business in return for that payment?
3. Redrow had not merely derived a benefit from the services that the agent had supplied to the purchasers. It had chosen the agents and instructed them, and, in return for the payment of their fees, it obtained a contractual right to have the householders’ homes valued and marketed in accordance with its instructions. The performance of those services constituted a supply of services to Redrow for the purpose of its business. Accordingly, the decision of the tribunal was to be affirmed.
Paul Lasok QC and Melanie Hall (instructed by the solicitor to the Inland Revenue) appeared for the commissioners; Richard Bramwell QC and John Dick (instructed by the solicitor to Redrow Group Services) appeared for the taxpayer.
Thomas Elliott, barrister
