NT Advisors Partnership
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 August 2017 |
| Neutral Citation | [2017] UKFTT 625 (TC) |
| Date | 11 August 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas
Keith Gordon (instructed by Jefferies Essex LLP) appeared for the appellant
Sebastian Purnell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Tax avoidance scheme promoter – Input tax on barristers fees where the only future outputs were contingent success fees – Effect of transfer of business as going concern (TOGC) where no application to keep VAT number – Right of transferee to deduct input tax on fees where services provided partly before transfer, but invoices issued after – Taxpayer's appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision to disallow the input tax claimed on fees charged by barristers. HMRC questioned whether the barristers' fees formed a cost component of any outputs. The FTT held that the services supplied by the barristers were cost components of the appellant's outputs (the success fees), or of its predecessor's outputs (the upfront fees).
The NT Advisors Partnership (the appellant) appealed against HMRC's decision to deny it credit for input tax, which was charged by barristers for advice given by them in connection with cases. All cases concerned tax avoidance schemes promoted by a number of entities, all of which had the words NT Advisors in their name. When the FTT referred in its decision simply to NT Advisors this meant all, or any, of the entities.
NT Advisors 2009 LLP (2009 LLP) registered for VAT and carried on a business as the promoter of tax avoidance schemes. The VAT returns of 2009 LLP disclosed few if any outputs, but included inputs concerning the ongoing expenses incurred in litigation, and payments of excess of input tax over output tax, if any, had been made to it. At 6 March 2015, 2009 LLP owed VAT of £1,030,652. On 6 March 2015, a Business Purchase Agreement (BPA) was made by 2009 LLP as seller and the appellant as buyer. The BPA showed as being sold and bought the goodwill, data and a licence, book debts and the benefit, subject to the burden, of the business contracts. The BPA further stated, under the heading Risk and Liabilities, that any non-contingent fees and receipts referable to the period up to completion remained with the seller and all profits and receipts of the Business referable only to the time from the completion belonged to the buyer.
The BPA showed that the seller was 2009 LLP, a limited liability partnership registered in England. The buyer was (1) Matthew Jenner as the trustee of the Matthew Leslie Jenner NT Trust and (2) Matthew Jenner as the trustee of the John Anthony Mehigan NT Trust. Mr Jenner was both of the partners of the appellant, (which is not an LLP, but a partnership formed under the Partnership Act 1890) but in different capacities. This explained why only one partner was shown on the VAT registration application form. Mr Jenner was also one of two members of 2009 LLP (the other was Mr Mehigan): Mr Jenner's membership terminated on 6 March 2015 (the date of the BPA, which was a transfer of a going concern (TOGC)).
The appellant's first VAT return was for the extended period 6 March 2015 to 31 July 2015. This showed VAT on outputs of £0 and VAT on inputs of £34,775, and total value of purchases £173,875. HMRC disallowed the input tax claimed by the appellant.
The appellant argued that it was entitled to credit for the input tax, because input tax was paid by it in prescribed accounting periods ending after 6 March 2015 (when it was registered), was paid when the barristers' fees were paid and those services were made in the course or furtherance of a taxable business being carried on by the appellant (para. 86 of the decision). This argument was not affected by the fact that some of the barristers' services were provided in 2013, 2014 and 2015 (i.e. before 6 March 2015) to 2009 LLP before the TOGC to the appellant.
HMRC argued that the appellant was not liable to make the payments of which the VAT in issue formed part. This was because the barristers were instructed by, and provided legal services to, a different entity (either 2009 LLP or NT Advisors LLP), so what the appellant paid was by way of third-party consideration. Some of the services were supplied in 2013 and 2014, i.e. before the formation of the appellant and the BPA (para. 92 of the decision).
The FTT considered the appellant's business model, which includes the payment of barristers' fees. 2009 LLP was obliged to incur them at the point when the services were provided at each stage of the litigation. It was also inherent in the model that success fees may never be paid, and the efforts of counsel may be in vain, because the Tribunals and Courts may reject their arguments. This type of model, with upfront fees, major costs in the short term (executing the schemes) and a long tail of smaller costs is not a usual one for commerce, but is by no means unprecedented. There was a strong similarity with retailers who provide a warranty for their goods and with certain types of insurance.
Apparently, there would have been no dispute that the services of the barristers were provided for the purposes of 2009 LLP and without the BPA would have been so provided after 5 March 2015 (para. 118 of the decision).
HMRC questioned whether the barristers' fees formed a cost component of any outputs that 2009 LLP might make in the future (para. 119 of the decision). Referring to items forming cost components of outputs concerns whether there is a direct and immediate link with either specific outputs or outputs generally.
The barristers fees could have a direct and immediate link to the following outputs of 2009 LLP:
1) the non-contingent upfront fees and
2) the success fees.
The FTT decided that to deny deductibility would require too narrow a view of the case law on input tax (para. 125 of the decision).
There were no exempt transactions. Thus, the barristers' fees were deductible either because they formed costs components of the fees for the particular schemes the barristers advised about or they were part of the general costs and so cost components of the price of 2009 LLP's products (para. 128 of the decision).
The FTT noted that in C & E Commrs v Midland Bank plc ECASVAT(Case C-98/98) [2000] BVC 229, the court said at para. 22:
However, … entitlement to deduct, once it has arisen, is retained even if the economic activity envisaged does not give rise to taxed transactions or the taxable person has been unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his control …
That was the case here. If there were no success fees, it was because of the decisions of the Courts or Tribunals, such decisions being beyond the control of NT Advisors. Thus, even if there was no direct and immediate link with the upfront fees, there would be with the success fees. The FTT held that it would not be in the spirit of the VAT Directive or of Value Added Tax Act 1994 (VATA 1994), s. 24 to deny any relief for the barristers' fees (para. 132 of the decision).
The FTT considered whether the transfer from 2009 LLP to the appellant made any difference. The FTT held that the BPA transferred to the appellant the right to success fees from all schemes in which 2009 LLP was involved and the liability to pay suppliers, including the three barristers, which in turn included the liability to pay the VAT on the invoices issued by those suppliers. Thus, just as the barristers services were cost components of the outputs of 2009 LLP and so, if the BPA had not taken place, the input tax on them would have been deductible by 2009 LLP, any invoices paid by the appellant for those services were, in principle, deductible by the appellant, as the services were cost components of the appellant's outputs (the success fees) or of its predecessor's outputs (the upfront fees) received as part of the business which the appellant acquired (para. 141 and 142 of the decision).
Thus, the FTT allowed the appeal against HMRC's decision (para. 155 of the decision).
The facts in this dispute are unusual. Some advisers are familiar with the name NT Advisors, because the Press Office of HMRC has publicised HMRC's victories in the Tribunals and Courts in relation to schemes promoted by them. The nature of the business may have hardened HMRC's attempt to disallow the input tax. Input tax is defined as VAT incurred on goods or services which are used, or to be used, for the purposes of the business. Whether goods or services are obtained for the purposes of the businesses is sometimes open to doubt. The matter has been considered in many cases. The FTT must look at all the circumstances and draw such inferences as it thinks fit. In the end, it is a question of fact whether on the balance of probability the object in the taxpayer's mind at the time the expenditure was incurred was that the goods and services in question were to be used for the purposes of the business.
[1] This was an appeal by the partners of the NT Advisors partnership (the appellant) against a decision of the Respondents (HMRC) to deny the appellant credit for input tax of £34,775.01 shown in its VAT return for the prescribed accounting period ending on 31 July 2015 (07/15).
[2] The input tax concerned was charged by three barristers in Pump Court Tax Chambers for advice etc given by them in connection with three cases. The cases all concerned tax avoidance schemes promoted by a number of entities all of which have the words NT Advisors in their name and in this decision where I refer simply to NT Advisors this should be taken to mean all or any of the entities.
[3] Many readers of this decision will be familiar with the name NT Advisors, not least because the Press Office of HMRC has been assiduous in publicising HMRC...
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