Key Point

The Court of Appeal has held that a UK company undergoing a financial restructuring was not entitled to recover VAT charged by accountants who prepared reports for the company's lenders use during the restructuring process.

The facts

MyTravel Group PLC underwent a financial restructuring some years ago. As part of that process PwC was appointed to prepare reports on the business and financial condition of the company for the sole use of its lenders. The company agreed to meet PwC's costs although it was agreed that the reports would be addressed to, be used by the lenders (some but not all of them being copied to the company) and that PwC owed contractual duties to the lenders not the company. Had PwC provided a service to the company – in which case it could recover the VAT- or just the lenders alone in which case recovery would not be permitted?


The Court of Appeal held by a 2-1 majority that the services had been provided just to the lenders and the company could not recover VAT.


The outcome in this case was very much dependent upon the specific terms of the engagement letter concluded between PwC, the company and the lenders. Even though on the face of that letter it looked as if the company had asked PwC to provide the reports to its lenders the Court of Appeal thought it did not mean the company had commissioned those services. The letter was simply a contract for PwC to provide services to lenders with a commitment on the part of the company to pay for those services.

Airtours Holidays Transport Limited v HMRC