TC09595 - [2025] UKFTT 00894 (TC)

In Halifax at [94] the Court stated:

“It follows that transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.”

Therefore, as Mr Watkinson submits, redefinition of a supply only applies where there has been an abusive practice. As we would have found that to be the case if we had reached a different conclusion on the “consideration” issue, we would agree with him that, as the “VAT gap” is the failure to charge the cadet VAT, any redefinition would be to treat the security bond as a taxable supply of training to the cadet.

Ms Shaw contends that this (and our conclusion that the bond is consideration for training) would lead to double taxation as, in addition to the VAT on the supply of training to the cadet there would also be VAT on the supply of that same training under the placement fee and that credit should therefore be given. This she argues is not only a principle of basic fiscal fairness but a prerequisite for fiscal neutrality of the VAT system.

While that must be correct, it does not necessarily follow that there would be double taxation in this case. As Mr Watkinson submits, the better analysis is that there were two taxable supplies made by APL. The first of training to the cadets and the second of newly qualified pilots to Sponsor Airlines. When this was put to Ms Shaw by the Tribunal her response was why would the Sponsor Airlines pay such an “enormous price” and that the placement fee only makes sense if it is a payment for training, otherwise it would be “an absolutely exorbitant fee for a cadet that has already paid for their own training.”

However, even if that is the case, as is clear from Massey at [76] the outcome does not have to be economically realistic when the transaction is redefined. Accordingly, we do not consider any redefinition to give credit for the VAT on placement fees to be necessary.