On 17 March 2017, in two separate cases4 the Upper Tribunal dismissed two taxpayer appeals in cases involving tripartite arrangements.

In the first case (Adecco) the Tribunal decided that the contractual position was consistent with the economic reality of the transaction. Adecco supplied the temporary workers to Adecco’s clients. One contract was entered into between Adecco and its client, with another contract between Adecco and the worker. In no cases were contracts entered into directly between the client and the worker. Adecco had appealed to the Tribunal on the basis that it had incorrectly accounted for VAT on the full amount paid to it by the client. Adecco’s view was that it should be liable for VAT only on the commission element of the client’s payment, as it supplied introductory services only. The Tribunal, agreeing with the First-tier Tribunal, held that Adecco was in fact making a supply of the workers to its client (with the effect that VAT was due on the full amount paid by the client).

In the second case (U-Drive), the Tribunal held that on the facts the contractual position did not reflect the economic reality. U-Drive’s appeal was dismissed. U-Drive could not seek input VAT recovery on amounts invoiced by third-party garages for repairs as only the car owners could receive the garages’ repair supplies. This was the case even though the only contract was between U-Drive and the garage.

Both Tribunal decisions applied a two-stage process, following the Supreme Court decision in Airtours5 , of:

• considering the contractual position, before

• deciding whether that contractual position reflected the economic reality of the transaction.

The Tribunal decisions can be viewed here and here.