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 – VAT tribunal allowing taxpayer’s claim – Judge dismissing Commissioners’ appeal – Court of Appeal allowing Comissioners’ appeal
The taxpayer, the Redrow Group plc (Redrow), built houses for sale in the private sector. Since most of their prospective purchasers had an existing home to sell and could not proceed with a purchase until their homes were sold, Redrow designed and operated as a marketing device a sale incentive scheme. 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 staff would keep in close contact with the agent to ensure that maximum effort was made to sell the house. On the exchange of contracts the estate agent would send an invoice to Redrow. However Redrow only became liable to pay the agent when the purchaser completed the purchase of a Redrow home. 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 it had paid to the 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 and it was necessary to wait and see if the prospective purchaser brought a Redwood home and, when the prospective purchaser bought a Redrow home it could then be concluded that the agent had made a supply to Redrow. The commissioners appealed. The judge dismissed the appeal and held that the wait and see approach was unnecessary since the agent’s services had been provided to both Redrow and the prospective purchaser, sufficient in itself to entitle Redrow to recover the tax paid to the agent as allowable input tax.
Held The appeal was allowed.
1. In order for the taxpayer to be able to deduct the tax paid on the services supplied, the services in question had to have had a direct and immediate link with the taxable transaction and the ultimate aim pursued by the taxpayer was irrelevant in that respect: see BLP Group plc v Customs and Excise Commissioners [1995] STC 424. That requirement applied to the central question of “to whom had the supply of services been made?”.
2. For the purposes of VAT there were two distinct transactions, the sale by the purchaser of his home and the sale by Redrow of a new house. The agent’s services were supplied and the fees incurred in the sale of the purchaser’s home, a service provided to the prospective purchaser and not to Redrow. Therefore the agent had not supplied Redrow with a service and accordingly Redrow was not entitled to recover the tax paid to the agent as allowable input tax.
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.