Customs and Excise Comrs v Redrow Group Plc

For value added tax purposes, a taxable person may deduct tax on a supply where it paid the consideration, obtained something of value for its business, and the supply was used for that business. A service may be supplied to that person even though related services are also supplied to a third party.

The recipient is identified from the claimant’s standpoint by asking what was done for it in return for its payment. The right to have services performed for a third party may itself be a supply of services. The direct and immediate link test concerns attribution between taxable and exempt outputs. It does not determine who received the input supply.

Customs and Excise Comrs v Redrow Group Plc concerned a housebuilder’s sales incentive scheme. Redrow selected and instructed estate agents to value and market prospective purchasers’ existing homes. It agreed to pay the agents’ fees and value added tax if those purchasers completed their purchases of Redrow homes.

The Value Added Tax Tribunal held that the agents supplied services both to Redrow and to the householders. Potts J dismissed the Commissioners’ appeal. The Court of Appeal reversed that decision in [1997] S.T.C. 1053, holding that the services were directly and immediately linked to the householders’ sales and were not supplied to Redrow.

The issue before the House was whether the tax paid on the agents’ fees was input tax on services supplied to Redrow within section 14(3) of the Value Added Tax Act 1983.

1. Appeal allowed unanimously. Lord Hope of Craighead and Lord Millett delivered the substantive speeches. Lord Steyn, Lord Goff of Chieveley and Lord Hutton agreed with both. The decision of the Value Added Tax Tribunal was affirmed.
2. Per Lord Hope, a service is whatever is done for consideration. Its name or conventional description is immaterial. The question must be considered from the standpoint of the taxable person claiming input tax: was something done for it, for consideration bearing value added tax, in the course or furtherance of its business? A third party’s receipt of a service within the same transaction does not deprive the person who instructed and paid for its service of the deduction.
3. Per Lord Millett, the claimant must identify the payment of which the claimed tax formed part and ask whether it obtained anything of value, used or to be used for its business, in return. That value may be goods or services supplied directly to it. It may also be a contractual right to have goods delivered or services rendered to a third party, since granting that right is itself a supply of services.
4. Redrow chose and instructed the agents. In return for paying their fees, it obtained enforceable rights concerning the valuation and marketing of the householders’ homes, monitoring of performance, pressure for a prompt sale, and control over changes to instructions. Those acts were therefore services supplied to Redrow. They served its business by facilitating and securing sales of its new homes.
5. The agents also rendered different services to the householders. The relevant subsequent event determined which party became liable to pay for the service rendered to it, rather than suspending the identity of the recipient. Redrow had no input tax to deduct unless the conditions triggering its liability to the agent arose.
6. The Court of Appeal had misread B.L.P. Group Plc v Customs and Excise Commissioners [1996] 1 WLR 174. Its direct and immediate link requirement concerned attribution of input tax between taxable and exempt outputs under article 17(5) of the Sixth Council Directive 77/388. It did not identify the recipient of an input supply. Since Redrow’s supplies were all taxable and the agents’ services were used for its business, no such allocation issue arose. The fees were in any event a necessary cost exclusively attributable to the corresponding Redrow sale.

1. House of Lords: Allowed Redrow’s appeal unanimously and affirmed the decision of the Value Added Tax Tribunal.
2. Court of Appeal: In [1997] S.T.C. 1053, reversed Potts J and held that the estate agents’ services were supplied only to the prospective purchasers.
3. High Court: Potts J, in [1996] S.T.C. 365, dismissed the Commissioners’ appeal and upheld the tribunal’s finding that the services were supplied to both Redrow and the purchasers.
4. Value Added Tax Tribunal: Allowed Redrow’s appeal against the assessment. It found that, when Redrow became liable for the fee, the agent supplied services to Redrow as well as to the householder.