Weald Leasing Ltd (2003)
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE LINDSAY |
| Judgment Date | 16 January 2008 |
| Neutral Citation | [2008] EWHC 30 (Ch) |
| Docket Number | Case No: CH/2007/APP/0191 |
| Court | Chancery Division |
| Date | 16 January 2008 |
[2008] EWHC 30 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Lindsay
Case No: CH/2007/APP/0191
Mrs Melanie Hall QC and Mr Raymond Hill (instructed by HMRC) for the Appellants
Mr Michael Conlon QC and Miss Nicola Shaw (instructed by McGrigors LLP) for the Respondent
Hearing dates: 27 th and 28 th November 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Lindsay :
Introduction
The taxpayer, Weald Leasing Limited (“Weald”), a member of the Churchill commercial group of companies (“the Churchill Group”) carrying on insurance businesses but not a member of their VAT group, acquired in the ordinary way from third parties goods of a kind needed, in the course of their insurance businesses, by two other members of the commercial group. Those two Group companies were Churchill Accident Repair Centre (“CARC”) and Churchill Management Limited (“CML”). So great a part of CARC's and CML's respective businesses consisted of the exempt supply of insurance that purchases of the goods by CARC and CML themselves would have given rise to an input tax recovery by them of less than 1%. Weald, though, was not an exempt trader and, having paid the input tax associated with its purchase of the goods, it then obtained appropriate deductions from its output tax. Weald's acquisition was in the course of a scheme which, whilst its component transactions were intended to take effect according to their respective letter, was (as is now admitted) a scheme the essential, indeed sole, aim of which was the obtaining of a VAT advantage.
The scheme involved interest-free loans from CML or other Group companies to Weald to enable Weald to pay for the goods and then the leasing of the goods so acquired by Weald to an interposed third party (which was neither a Churchill Group company nor inside any relevant VAT group) and subleasings on from that interposed third party to CARC and CML. The tax advantage so procured was, or at least included, that instead of one or more members of the Churchill Group bearing irrecoverable VAT on the supply to them of the goods and of the Group thus bearing that expense in full at the point of supply, instead, by way of such a leasing by Weald and by such subleases as I shall describe, CML and CARC came to enjoy immediate use of the goods whilst bearing VAT only, little by little, as payments under the subleases fell due. Lest the subleases might have been regarded by HM Revenue and Customs (“HMRC”) as at too low a rental, the third party had been interposed as part of the scheme with a view to denying to HMRC the ability (likely otherwise to be open to them) to require tax to be paid as if the sublettings had been at full market value. CARC and CML have paid VAT on the sublease rentals as, period by period, they have fallen due. However, HMRC, having in mind what they took to be the artificiality and want of commerciality of the scheme and what they believed to be its essential aim, namely the obtaining of a tax advantage, saw themselves as entitled to label the whole scheme as so consisting of abusive practice as duly to give HMRC the right to “redefine” the arrangement made in such a way as to undo all tax advantage which it might otherwise have conferred upon the Churchill Group or upon Weald (a subsidiary of CML) as part of it.
Regarding themselves as so entitled, HMRC made assessments which relied upon such a “redefinition”. Weald's appeal against those assessments came before the London Tribunal Centre on a number of days between January 2005 and September 2006. The hearing before the Tribunal was unusually prolonged partly because of a very detailed investigation of the facts, which included cross-examination spread over several days, but also because the hearing straddled the important decision of the ECJ in Halifax plc and Others v. Customs and Excise Commissioners [2006] STC 919— Case C-255/02, the judgment in which was published on 21 st February 2006. On the same day the ECJ handed down judgments in BUPA Purchasing Ltd & Anor v Customs and Excise Commissioners [2004] STC 967 and University of Huddersfield Higher Education Corporation v Customs and Excise Commissioners [2006] STC 980 which cases, like Halifax, deal with abusive practice and VAT deductibility.
As for what is meant in Halifax by “redefinition”, that was dealt with in paragraph 98 of the judgment of the Court and in identical terms in holding 3 of the Grand Chamber's ruling, namely:
“Where an abusive practice has been found to exist, the transactions involved must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.”
Once the Halifax judgment was available arrangements were made for further written and, later, oral argument to be received by the Tribunal from the parties and the decision of the Tribunal – Mr Theodore Wallace (Chairman), Mr K. Goddard MBE and Mr Cyril Shaw FCA – was released on 7 th February 2007. The Tribunal held that no “redefinition” of any kind claimed by HMRC was appropriate and the taxpayer's appeal against the assessments was allowed.
A large part of the hearing before the Tribunal had been directed to Weald's assertion that genuine commercial motives had underpinned the transactions within what I have called the scheme. HMRC, appearing then, as also before me, by Mrs Melanie Hall QC leading Mr Raymond Hill, had cross-examined Weald's witnesses to counter that assertion and the Tribunal dealt robustly with the matter. At its paragraph 151 it said:
“We do not find any of the explanations for the transactions other than the attainment of tax advantages by the Churchill VAT group to be remotely convincing.”
Before me Weald, appearing by Mr Michael Conlon QC (who had not appeared below) leading Miss Nicola Shaw (who had), now accept that the loan, purchase and leasing arrangements which I have spoken of as a scheme were entered into for the sole purpose of obtaining a tax advantage.
Given that radical change of approach and given also that a good part of the argument at the Tribunal before the Halifax judgment had been published had been directed to the argument (unsustainable post- Halifax) that the transactions within the scheme did not even amount to economic activity, the case as argued before me has been so different to that put to the Tribunal that the more convenient course, in my view, is for me first to deal with the argument as it has been presented to me and only then to deal, in such detail as then may be necessary, with the decision of the Tribunal. But even upon that basis it is necessary first for me to explain what were the transactions within the scheme.
The scheme
I have mentioned that a third party was interposed in the leasing arrangements. That third party was Suas Limited (“Suas”), a company incorporated in 1995 which was owned by Mr Mark Buffery FCA and his wife. Mr Buffery was at material times the only director of Suas. From 1995 he was VAT consultant to the Churchill Group. Weald was incorporated on 16 th April 1997 as a wholly owned subsidiary of CML. It commenced trading on 17 th June 1997. In the meantime, by April 1997 and prompted, it would seem, by Mr Buffery, Mr Boddy, a finance manager in the Churchill Group Finance Department, was considering the possibility of using a company – which became Weald —as a vehicle for recovering VAT on assets that the Group might buy in the future. The plan was that Weald would buy the goods, then lease them to Suas which would then sublease to whichever Churchill Group company had needed them. On 29 th May 1997 Mr Boddy sent to CARC a memorandum which said:
“With a view to reducing our VAT costs, we have set up a separate company I would like purchases of all assets from now on, which are authorised by yourself, to be invoiced to [Weald] …”
Weald acquired assets with either the assistance of, or with a total reliance upon, unsecured interest-free loans from companies in the Churchill Group, including from its parent, CML. Group companies thus indirectly bore at the outset the expense of the very goods which were then subleased to one or more of them. Weald had no employees and it was not Weald but employees of CARC and CML who selected the assets which Weald bought. It was not Weald but employees of CARC or CML who obtained quotations from the prospective suppliers of the goods. Within the Churchill Group, a purchase requisition form was sent not to Weald but to the Group Finance Department for authorisation. Authorisation was given at Group level for the purchases. Management decisions relating to the purchases were taken not by Weald but by the Group Executive Committee, which met weekly. No separate decisions on the purchases and leasing of assets were taken by Weald's own board.
Weald signed an equipment leasing agreement with Suas and thereafter either further leasing agreements were made between them or new equipment was added by agreement to existing leasing agreements between those parties. Rent was payable quarterly in advance. Time was of the essence in respect of rental payments. The equipment remained in the ownership of Weald and the lessee was not to dispose of it otherwise than by sublease. Weald remained liable to maintain the equipment but the lessee was required to make good any damage or loss. Weald was entitled to terminate if the lessee failed to pay sums due on time or breached any other term of the agreement. Suas was...
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