TC09596 - [2025] UKFTT 00895 (TC)

The case of Redrow involved a house-builder who paid estate agents’ fees for services provided to end-purchasers of new houses, in respect of the sale of their old home. This was to smooth the path for end-purchasers in buying a new house from Redrow. Redrow sought to reclaim the input tax on the fees and the repayment was refused. The VAT problem was that while the party that paid could reclaim the input tax, the customers who were the recipients of the supply could not. The factual matrix was that Redrow:

The case reached the House of Lords and led to a decision in favour of the company, which was permitted to retain the input tax on the basis that it was receiving the supply. The decision of the House of Lords in Redrow has been treated as authority for two propositions:

Lord Hope of Craighead posed this question, at p 412:

“Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration …?”

Lord Millett asked, at p 418:

“Did he obtain anything – anything at all – used or to be used for the purposes of his business in return for that payment?”, those questions are to be understood as being concerned with a realistic appreciation of the transactions in question.”

Lord Millett’s paragraph strongly implied that the taxpayer would be able to reclaim the input tax, provided also that it could show that the supplies received allowed it to obtain “anything at all” for “the purposes of its business”.

However, as Lord Reed explained in Aimia, at [66] to [68]:

“66.

…the speeches in Redrow should not be interpreted in a manner which would conflict with the principle, stated by the Court of Justice in the present case, that consideration of economic realities is a fundamental criterion for the application of VAT. Previous House of Lords authority had emphasised the importance of recognising the substance and reality of the matter (Customs and Excise Commissioners v Professional Footballers’ Association (Enterprises) Ltd [1993] 1 WLR 153, 157; [1993] STC 86, 90), and the judgments in Redrow cannot have been intended to suggest otherwise. On the contrary, the emphasis placed upon the fact that the estate agents were instructed and paid by Redrow, and had no authority to go beyond Redrow’s instructions, and upon the fact that the object of the scheme was to promote Redrow’s sales, indicates that the House had the economic reality of the scheme clearly in mind. When, therefore, Lord Hope posed the question, “Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration …?”, and Lord Millett asked, “Did he obtain anything – anything at all – used or to be used for the purposes of his business in return for that payment?”, those questions should be understood as being concerned with a realistic appreciation of the transactions in question.

67.

Reflecting the point just made, it is also necessary to bear in mind that consideration paid in respect of the provision of a supply of goods or services to a third party may sometimes constitute third party consideration for that supply, either in whole or in part. The speeches in Redrow should not be understood as excluding that possibility. Economic reality being what it is, commercial businesses do not usually pay suppliers unless they themselves are the recipient of the supply for which they are paying (even if it may involve the provision of goods or services to a third party), but that possibility cannot be excluded a priori. A business may, for example, meet the cost of a supply of which it cannot realistically be regarded as the recipient in order to discharge an obligation owed to the recipient or to a third party. In such a situation, the correct analysis is likely to be that the payment constitutes third party consideration for the supply.

68.

It is also important to bear in mind that decisions about the application of the VAT system are highly dependent upon the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another. I would therefore hesitate to treat the judgments in Redrow as laying down a universal rule which will necessarily determine the identity of the recipient of the supply in all cases. Given the diversity of commercial operations, it may not be possible to give exhaustive guidance on how to approach the problem correctly in all cases.”

Lord Reed pointed out that the normal expectation is that a commercial business paying a supplier is paying for a right to something, even if that something is a supply to another party.

Lord Hope made the same point (concerning Lord Millett’s words in Redrow), at [110]:

“I think that Lord Millett went too far [at p 418G] when he said that the question to be asked is whether the taxpayer obtained ‘anything - anything at all’ used or to be used for the purposes of his business in return for that payment. Payment for the mere discharge of an obligation owed to a third party will not, as he may be taken to have suggested, give rise to the right to claim a deduction. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole.”