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ING Intermediate Holdings v HMRC

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In ING Intermediate Holdings v HMRC [2016] UKUT 298 (5 July 2016), the UT found that ING had been making exempt supplies of services to depositors, so that any input tax incurred in securing those deposits was not recoverable.

The appeal related to the business of ING Direct, which involved taking cash deposits from retail customers and deploying the funds raised, mainly via the acquisition of bonds, in such a way as to make a profit. The dispute related to input tax incurred in connection with deposit taking. The substantial input tax had been incurred on expenditure on advertising campaigns, the construction of a head office and two call centres, IT systems and services, and employment of staff, including recruitment costs.

The main issue was whether the deposit taking activity involved a supply of services for consideration by ING or whether it was merely the lending of money. The FTT found that services were supplied depositors. Both Newey (Case C-653/11) and Secret Hotels2 [2014] UKSC 16 were authority for the proposition that contractual terms were the starting point; and the terms and conditions on which deposits were taken were consistent with services being provided to depositors as customers.

Furthermore, the commercial reality was that the depositors were customers; ING was providing banking services in the form of deposit accounts. The FTT also found that consideration was provided: ‘The clear bargain between the parties was that if a deposit was made, the depositor would (in addition to the obligation to repay) receive in exchange interest together with the services.’ Finally, that consideration could be expressed in monetary form.

Read the decision.

Why it matters: ING’s claim for a VAT refund of over £6m  failed. Although this was sufficient to dispose of the appeal, the FTT also suggested that ING’s activities had not amounted to an ‘economic activity’, so that the input tax claimed would not have been recoverable in any event.

Issue: 1317
Categories: Cases , VAT