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Airtours Holidays Transport v HMRC

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In Airtours Holidays Transport v HMRC [2016] UKSC 21 (11 May 2016), the Supreme Court found that Airtours was not entitled to recover input tax in relation to a report prepared by PwC and paid for by Airtours.

The issue was whether Airtours was entitled to recover input tax in respect of services provided by PwC and paid for by Airtours. This in turn depended on whether the services provided by PwC had been supplied to Airtours.

Airtours, which had borrowed money from around 80 banks, had been in serious financial difficulties and had sought refinancing. It had commissioned PwC to produce an accountants’ report to satisfy the banks that its restructuring proposals were viable.

The first issue was whether PwC had contractually agreed with Airtours that it would supply services to it, such as providing a report to the banks. The Supreme Court found that PwC’s obligation to provide its services was owed solely to the banks; and that Airtours was a party mainly for the purpose of agreeing to pay PwC’s fees.

The second issue was whether the facts that Airtours had a substantial commercial interest in the services being provided by PwC to the banks, and that it had agreed to pay PwC for the services, led to the conclusion that the services were ‘supplied’ to Airtours (as well as to the banks). The court found that the benefit which Airtours received was not the services from PwC, but the enhanced possibility of funding from the banks.

Read the decision.

Why it matters: Two Lords dissented, observing that the approach taken by Lord Neuberger was too narrow. In their view, the real issue was whether, on the facts, the arrangements between the banks, PwC and Airtours involved the supply of services to Airtours or merely third party consideration provided by Airtours for services rendered to the banks alone. Airtours’ future had depended on the report, so that the value of the services provided by PwC was as great to Airtours as it was to the banks. They concluded that a tripartite agreement had been entered into and that PwC had owed a duty of care to Airtours.

Also reported this week:

Issue: 1309
Categories: Cases , VAT