In Temple Finance and Temple Retail v HMRC [2016] UKFTT 41 (25 January 2016), the FTT found that a group structure which involved two companies in the same business was not artificial.
The two associated companies (TF and TR) carried out the ‘PerfectHome’ business. The business involved the sale of household goods furniture and electronic goods to consumers. It was aimed at credit constrained customers and most of the goods were sold under hire-purchase contracts, together with (optional) insurance and warranty.
TF provided finance and other services to customers, whilst TR sourced and supplied the goods. HMRC contended that the arrangements were artificial and that only one business was being carried out. The FTT was, however, satisfied that the ‘two company’ structure had not been set up with a view to securing VAT advantages, but had clear commercial advantages.
VATA 1994 Sch 6 applies only in relation to goods or services provided for a consideration that is less than their open market value. HMRC contended that TR, as a wholesaler, charged TF more than the open market value (97% of the retail price) for certain goods or services; and that this, in turn, suggested that TR ‘compensated’ for this element of overcharging by undercharging for other services.
The FTT found, however, that TR was not a wholesaler, given its expense of maintaining a large number of retail showrooms. Furthermore, while it sold large quantities of goods to TF in aggregate, it only sold a particular item to TF if TF was about to sell that item to an individual customer. It did not sell large quantities of goods in a single transaction.
Finally, the FTT found that TF’s business involved the making of taxable supplies of goods. Moreover, it could not make exempt supplies of finance without making those taxable supplies (since it did not provide finance other than for the purpose of enabling a customer to purchase goods). The taxable and exempt supplies were therefore inextricably linked with each other and the amount of its recoverable input tax on overheads should be determined by applying the standard (turnover-based) partial exemption method.
Why it matters: Although HMRC did contend that the structure was uncommercial, it fell short of relying on the Halifax principle of abuse. The FTT stressed that although the decision to structure the PerfectHome group in two companies had come at a cost, in terms of additional irrecoverable input tax, increased compliance costs and more complexity, this did not in itself make the structure uncommercial.
In Temple Finance and Temple Retail v HMRC [2016] UKFTT 41 (25 January 2016), the FTT found that a group structure which involved two companies in the same business was not artificial.
The two associated companies (TF and TR) carried out the ‘PerfectHome’ business. The business involved the sale of household goods furniture and electronic goods to consumers. It was aimed at credit constrained customers and most of the goods were sold under hire-purchase contracts, together with (optional) insurance and warranty.
TF provided finance and other services to customers, whilst TR sourced and supplied the goods. HMRC contended that the arrangements were artificial and that only one business was being carried out. The FTT was, however, satisfied that the ‘two company’ structure had not been set up with a view to securing VAT advantages, but had clear commercial advantages.
VATA 1994 Sch 6 applies only in relation to goods or services provided for a consideration that is less than their open market value. HMRC contended that TR, as a wholesaler, charged TF more than the open market value (97% of the retail price) for certain goods or services; and that this, in turn, suggested that TR ‘compensated’ for this element of overcharging by undercharging for other services.
The FTT found, however, that TR was not a wholesaler, given its expense of maintaining a large number of retail showrooms. Furthermore, while it sold large quantities of goods to TF in aggregate, it only sold a particular item to TF if TF was about to sell that item to an individual customer. It did not sell large quantities of goods in a single transaction.
Finally, the FTT found that TF’s business involved the making of taxable supplies of goods. Moreover, it could not make exempt supplies of finance without making those taxable supplies (since it did not provide finance other than for the purpose of enabling a customer to purchase goods). The taxable and exempt supplies were therefore inextricably linked with each other and the amount of its recoverable input tax on overheads should be determined by applying the standard (turnover-based) partial exemption method.
Why it matters: Although HMRC did contend that the structure was uncommercial, it fell short of relying on the Halifax principle of abuse. The FTT stressed that although the decision to structure the PerfectHome group in two companies had come at a cost, in terms of additional irrecoverable input tax, increased compliance costs and more complexity, this did not in itself make the structure uncommercial.
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