Weekly VAT Update – 28 March 2017
Consultations following Budget announcements
Following the Budget earlier this month, HMRC has issued two VAT consultations. The first is in respect of fraud in the provision of labour in the construction industry – comments are due by 9 June 2017. The second concerns how technology may be used to counter the avoidance of VAT by offshore operators of online sales websites, and comments are due by 30 June.
U-Drive Limited – Tripartite situation
U-Drive operates a vehicle hire business and contracted with a car repairer to carry out repairs to cars damaged by its hire vehicles in road accidents. Where the car owner agreed, U-Drive would pay for the car to be repaired as an alternative to an insurance claim. There was no contract between the car owner and the repairer. The repairer invoiced U-Drive for the repairs and U-Drive paid the invoice which included VAT.
In September 2013, U-Drive claimed repayment of VAT of £17,460 incurred on repairs to car owners’ vehicles in the VAT accounting periods 09/09 – 03/13. HMRC refused the claim and U-Drive appealed to the First-tier Tribunal (FTT). The FTT dismissed U-Drive’s appeal and held that the repairer supplied the repair services to the car owners, rather than to U-Drive. Accordingly, the VAT charged by the repairer was not input tax of U-Drive and it was not entitled to deduct it. U-Drive subsequently appealed to the Upper Tribunal against the decision.
The single issue in this case is whether the supplies made by the repairer in the course of repairing the car owners’ vehicles were supplies to U-Drive or to the Car Owners.
After analysing the application of principles in four leading cases, and taking account of all the circumstances, it appears to the UT that, in economic reality, U-Drive simply agreed to pay for the repair of the car owner’s vehicle. U-Drive had no interest in the repairs other than as a means by which to meet (at reduced cost) a liability that would otherwise be incurred through the insurer. The fact that U-Drive contracted to pay the repairer directly did not, in these circumstances, make U-Drive the recipient of any supply by the repairer. The UT reached its conclusion on the facts and circumstances of this case and dismissed U-Drive’s appeal against the decision.