The Court of Appeal has sent the Newey case back to the FTT for reconsideration. Previously the FTT and the UT had both decided that the arrangements that Mr Newey had entered into were not abusive and so should not be recharacterised for VAT purposes.
The facts of the case were that, prior to the reorganisation, Mr Newey carried out a loan broking business in partnership in the UK. The business was not registered for VAT and carried out only exempt financial services activities. This meant that the business could not recover any of its input tax, including VAT charged on advertising services provided to the business. In order to try to remove the irrecoverable VAT cost from the business, Mr Newey restructured it by incorporating a company in Jersey which purportedly provided the loan broking services to the customers in the UK and received services to allow it to conduct the business, including the advertising services. The result of this was that the advertising services were no longer subject to VAT and the irrecoverable VAT cost was removed from the structure. HMRC argued that the arrangements were ineffective because either the loan brokerage services continued to be supplied to the customers from the UK and the advertising services received in the UK or that, even if the services were supplied by and to the Jersey company, the introduction of it into the structure was an abuse of rights for VAT purposes applying the Halifax principle.
The FTT had decided that the advertising services were supplied in Jersey and that the VAT abuse principle requirements were not satisfied because the Jersey company conducted business activity. It also referred to no exempt activities being supplied from the UK under the Jersey structure. The case was appealed to the UT, who referred it to the ECJ. The ECJ confirmed that while the contractual terms were a factor in determining who was the supplier and who was the recipient for VAT purposes, they were not determinative if they did not reflect the economic and commercial reality and, in addition, said that it was “conceivable” that the structure amounted to an abuse of VAT law such that it could be recharacterised as the supply and receipt of services by Mr Newey from and in the UK. Notwithstanding this, the UT dismissed HMRC’s appeal against the FTT’s decision on the basis that the FTT had been entitled to reach its conclusions on the facts.
The Court of Appeal has now sent the case back to be reconsidered by the FTT on the basis that both the FTT and the UT erred in law in reaching their decisions. At the original FTT hearing, they had considered that the arrangements did not involve any exempt suppliers in the UK but that had it done so it was arguable that the scheme would have been abusive. The Court of Appeal considered that the conclusion on exempt activities was wrong and so has sent the case back to the FTT for reconsideration. The new judgement might then give some more colour to what is and is not considered to be an abusive arrangement.