HM Revenue and Customs v Airtours Holiday Transport Ltd (formerly) My Travel Group

JurisdictionUK Non-devolved
Judgment Date08 November 2010
Neutral Citation[2010] UKUT 404 (TCC)
Date08 November 2010
CourtUpper Tribunal (Tax and Chancery Chamber)

[2010] UKUT 404 (TCC).

Upper Tribunal (Tax and Chancery Chamber).

John F Avery Jones and Charles Hellier (Upper Tribunal Judges).

Revenue and Customs Commissioners
and
Airtours Holidays Transport Ltd

Elisa Holmes (instructed by the Solicitor to HM Revenue and Customs) for the appellants.

Andrew Hitchmough and Jonathan Bremner (instructed by PricewaterhouseCoopers Legal LLP) for the respondent.

The following cases were referred to in the judgment:

C & E Commrs v RedrowVAT [1999] BVC 96

Loyalty Management UK Ltd v R & C CommrsECAS (Case C-53/09) 7 October 2010

Telent plcVAT No. 19,967; [2007] BVC 2,262

WHA Ltd v R & C CommrsVAT [2004] BVC 485

Value added tax - Input tax - Taxpayer company in financial difficulties - Accountants engaged by financial institutions to carry out strategic review - Tripartite agreement entered into by taxpayer, financial institutions and accountants - Accountants' fee paid by taxpayer - Whether taxpayer entitled to deduct VAT as input tax - Whether taxpayer received something of value from accountants to be used for the purpose of its business in return for payment - HMRC's appeal allowed.

This was an appeal by HMRC against a decision of the First-tier Tribunal ([2009] UKFTT 256 (TC); [2010] TC 00201) that VAT charged to the taxpayer company by accountants in respect of fees under a tripartite agreement was deductible as input tax by the taxpayer.

In 2002, the taxpayer company was in financial difficulties, owing between £2bn to £2.5bn to about 80 banks. Accountants (PwC) were engaged by certain financial institutions, which had lent money to the taxpayer, to carry out a strategic review of the taxpayer's business restructuring proposals and to liaise with and make representations to banks and other creditors or bondholders of the taxpayer and the Civil Aviation Authority. The taxpayer was a party to the agreement and PwC's fees were paid for by the taxpayer which sought to recover the VAT charged as input tax. HMRC took the view that the services were supplied only to the banks and other institutions so that even if there was a benefit to the taxpayer there was no right to deduct input tax. The taxpayer argued that it received and paid for the services supplied by PwC and was entitled to input tax credit. The First-tier Tribunal allowed the taxpayer's appeal, concluding that the taxpayer had become a party to a tripartite agreement involving supplies of services to the taxpayer and those supplies were for the purpose of its business. Therefore the taxpayer satisfied the conditions for deduction of input tax ([2009] UKFTT 256 (TC); [2010] TC 00201). HMRC appealed.

Held, allowing the appeal:

1. The crucial factor was whether the taxpayer had received something from PwC in exchange for the payment. There was obviously some commercial benefit to the taxpayer from entering into the agreement, which was the hope that PwC's advice would result in the engaging institutions continuing to provide finance to it, otherwise it would not have agreed to pay for PwC's services. But since the question was to whom PwC supplied their services, any benefit flowing from the engaging institutions to the taxpayer could not be taken into account; nor was it possible to argue that the continued finance was the (indirect) benefit to the taxpayer of PwC's services because the agreement was made for the purpose of determining whether there would be any continued finance. (C & E Commrs v Redrow Group plc [1999] BVC 96 applied; WHA Ltd v R & C Commrs [2004] BVC 485 and Telent plc [2007] BVC 2262 (Decision No. 19,967) considered.)

2. The correct interpretation of the tripartite arrangement was that the engaging institutions were contracting for PwC's services for themselves on terms that the taxpayer paid for them without the taxpayer receiving any benefit from PwC to be used for the purpose of its business, as HMRC contended. As the agreement made clear, the engaging institutions needed PwC's services for the purposes of their own businesses and the fact that the taxpayer received a copy of the report was more of a courtesy than the receipt of the supply of PwC's services. The engaging institutions (and not the taxpayer) were contracting with PwC for the provision of services and PwC supplied those services to the engaging institutions. In deciding otherwise the First-tier Tribunal made an error law.

3. The First-tier Tribunal was also wrong in law in its construction of the agreement that the taxpayer "authorised PwC to do the work" by paying for it. It was the engaging institutions that first approached PwC, and contracted for the work and therefore authorised it. Nor was it clear from the terms of the agreement that the work of PwC was needed by the taxpayer or that the taxpayer authorised it and secured it for its own purposes. The terms of the agreement all pointed in the opposite direction, that it was the engaging institutions that wanted PwC's report for the purpose of their own business. That conclusion was not affected by the fact that the taxpayer had some input into the agreement by influencing the appointment of PwC, and by agreeing the scope of the work for which they were paying.

DECISION

1. The Commissioners of HM Revenue and Customs ("HMRC") appeal against the decision of the First-tier Tribunal (Mr Richard Barlow and Ms Rayna Dean) in Airtours Holidays Transport Ltd (formerly My Travel Group) [2009] UKFTT 256 (TC); [2010] TC 00201 which allowed the appeal by Airtours Holidays Transport Ltd ("Airtours") against HMRC's refusal to allow deduction of input tax. HMRC was represented by Miss Elisa Holmes (who stood in at short notice for Miss Rebecca Haynes who was ill and could not attend on the first day of the hearing, and Miss Holmes appeared on the second day booked; we are grateful to her for doing this at short notice so that the hearing date could be maintained, and we are also grateful to Miss Haynes for her skeleton argument), and Airtours were represented by Mr Andrew Hitchmough and Mr Jonathan Bremner.

2. The dispute relates to the deduction of input tax on the fees of PricewaterhouseCoopers ("PwC") paid by Airtours under a tripartite agreement ("the Agreement") between Airtours, PwC and a number of financial institutions in connection with Airtours' financial position in September 2002. The background to the Agreement was that Airtours was at the time in financial difficulties, owing between £2bn to £2.5bn to about 80 banks and was due to renew its revolving credit facility in December 2002. The most critical period was October and November 2002 when it was not clear whether the business would survive. PwC and KPMG were approached by the financial institutions that had lent money to Airtours to submit proposals for advisory work required to provide an insight into what was happening at Airtours. PwC was chosen as Airtours considered that KPMG had a conflict of interest as auditors to First Choice Holidays & Flights Limited, the purchase of which by Airtours had been blocked by the European Competition Commission in 1999.

The facts

3. The Agreement is in the form of a letter of 5 November 2002 from PwC addressed "To the Engaging Institutions") and headed "Silver Group plc [code for Airtours] and its subsidiaries ("the Group")" which contains the following terms:

Introduction

1. This letter ("the Letter of Engagement") confirms that we, PricewaterhouseCoopers ("PwC") have been retained by the institutions as defined in paragraph [this is blank but 4 is clearly intended] to provide the services ("the Services") set out below.

2. This Letter of Engagement outlines the Services to be provided, the fees to be paid in respect of the Services, and the terms applicable to the provision of the Services.

4. Our report and letters are for the sole use of the Institutions who have expressly agreed to this Letter of Engagement ("the Engaging Institutions") by countersigning below. They must not be distributed to any third parties without our written consent. We confirm that we are prepared to agree to provide copies of the information and advice produced under this engagement (save as detailed at paragraph 11 below) to each of the Engaging Institutions (as formed as at the date that this Letter of Engagement is signed) and are also prepared to assume a duty of case to each of them but only on the basis that they each individually agree to the terms of this Letter of Engagement as party to it.

6. To enable the institutions to develop views on the Group's current financial position and financing needs, you have requested that we assist in providing information to the institutions providing facilities to the Group.

7. Our work is to be conducted in a number of phases. The first phase of it is to assist the institutions providing banking, bonding and other facilities to the Group to gain a more detailed understanding of the present financial position of the Group. During this phase our role is to obtain and comment on this information to enable the institutions to better consider the Group's likely requests for facility extensions …

8. Information and advice produced from this engagement is to be addressed to the Engaging Institutions with a copy to the directors of the Group, with the exception of any part of the report prepared exclusively or confidentially for the Engaging Institutions.

9. We have a duty of care to the Engaging Institutions as described in paragraph 4 relating to the contents of the Phase 1 report …

10. You accept that the aggregate limit referred to in paragraph 9 of our Terms and Conditions applies to our liability to the Group and the Engaging Institutions and any other party to whom we later agree to assume a duty of care taken together.

11. We do not accept any duty of care or liability to any other party, including any party that acquires from the Institutions financial exposure to the Group subsequent to the date of our...

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3 cases
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    • 11 May 2016
    ...one in which Airtours received something of value from PwC to be used for the purpose of its business in return for its payment" — [2010] UKUT 404 (TCC), para 10 By a majority, the Court of Appeal dismissed Airtours' appeal — [2015] STC 61. All members of the Court of Appeal agreed that t......
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