Lindum Resources Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 July 1994 |
| Date | 11 July 1994 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Barclays Bank plc (No. 3) VAT(LON/90/1361) No. 6469; [1991] BVC 893
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
British Railways Board v C & E Commrs VAT(1977) 1 BVC 116
C & E Commrs v Scott VAT(1977) 1 BVC 139
Leightons Ltd VAT(LON/92/2521) No. 10,928; [1994] BVC 639
Rayner & Keeler Ltd VAT(1991) VATTR 532; [1991] BVC 1346
Virgin Atlantic Airways Ltd VAT(LON/93/947) No. 11,096; [1994] BVC 691
Supply - Characterisation of supply - Exemption - Finance - Making arrangements for advance or granting credit - Whether consideration related to two separate supplies - Identity of supply made in return for arrangement fee - Input tax - Whether attributable to single exempt supply or separate standard-rated supply - Value Added Tax Act 1983, s. 2, 5(1), 15(3) and 17(1); Sch. 6, Grp. 5, item 2 and 5; Directive 77/388, the sixth VAT directive, eu-directive 77/388 article 13(B)art. 13(B)(d).
The issue was whether part of the consideration received by the appellant was for a service identifiable as being separate from the exempt supply of arranging finance so that the company was entitled to reclaim an amount of tax suffered on supplies to it of goods and services.
The appellant was formed in July 1991 with the intention of using the business and financial knowledge of its directors to assist businesses to raise finance. The managing director placed much emphasis on the need to approach finance providers with properly prepared information. To this end, after the initial contact had been made with a client requiring finance, if it was thought that the appellant could assist the two parties a written agreement was concluded. Under the agreement the appellant "undertook to use its best endeavours to procure for the client a written offer of finance, subject to the terms and conditions set out in this agreement". In return for this an initial non-refundable "application fee" of between £250 and £1,000 was payable, with a further "funding fee", of one per cent of the total amount of finance, became payable if an acceptable written offer was made to the client, whether or not it was taken up.
After an agreement had been signed and the application fee paid the appellant then went about obtaining and collating the necessary information from the client. This formed the basis of a report, enabling the managing director to decide whether to proceed further. If such a decision was taken a financial proposal was submitted to the prospective borrower. In the first 12 months of the appellant's operations, the year ended July 1992, it dealt with 69 applications of which 32 resulted in the submission of funding proposals and of these 21 resulted in offers of finance, although in the event only 15 were accepted.
The company contended that it made two separate supplies, one of which was admittedly the exempt supply of arranging finance for which the consideration was the funding fee. However, it maintained that the application fee, which was an important source of income since relatively few proposals resulted in offers of finance, was the consideration for the initial advice given to a client on the likelihood of successfully borrowing money. This service did not fall within the exemption provisions of Directive 77/388, the sixth VAT directive, or the applicable domestic legislation. The appellant argued that it could not be said to be supplying the service of making arrangements for an advance since at the time at which the application fee was paid it was impossible to know whether credit could in fact be arranged.
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