VAT: Ltd – First-tier Tribunal decision | KPMG | UK
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VAT: Ltd – First-tier Tribunal decision

VAT: Ltd – First-tier Tribunal decision

The FTT considered a number of contracts finding mainly for the taxpayer in that it was acting as agent.


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This case on UK hotel accommodation concerns the same issue as that considered in Secret Hotels2 Ltd (SH2) SC [2014]. If the taxpayer is acting as principal, then UK VAT is accounted for under the Tour Operators Margin Scheme. The Supreme Court in SH2 found that the taxpayer was acting as an agent. According to this decision, this is one of many appeals currently before the Tribunal where the taxpayers argue that their facts are identical to those in SH2. The First-tier Tribunal (FTT) has concluded that the taxpayer was acting as an agent. 

The FTT sets out a summary of approach in SH2:

  • Start with the agreements themselves and identify the rights and obligations of the parties;
  • Construe the words used in the context of the agreement as a whole and all the surrounding circumstances, but only in so far as they were known to both parties, and the construction must be in accordance with the commercial context;
  • In light of that construction, characterise the nature of the relationship between the parties, recognising that the labels attached to the relationship by the parties may be of little weight;
  • Check whether the characterisation on that basis is in accordance with the economic reality; and
  • If on first impressions the circumstances establish a particular relationship between the parties, one must then consider whether that conclusion is impaired by facts which are inconsistent with that finding.

The decision is long because there were numerous different types of contracts, some which were un-signed or even missing. The FTT noted it would not be possible to consider all of the approximately seventy thousand contracts. However, the FTT, looking at standard contracts and samples of the various categories of contract found for the taxpayer in the main. The main exceptions were:

Missing contracts

The taxpayer has not discharged the burden of proof in order to prove it was operating in an agency capacity. 

Foreign contracts

The FTT concluded that contracts covered by foreign law must be construed in accordance with their terms and in accordance with the relevant law and this evidence was not available.

In all these appeals, HMRC are seeking a reference to the Court of Justice of the European Union regarding the meaning of ‘acting solely as an intermediary’ within Article 306 of the VAT Directive and whether that is different from an agent in English Law. This is being treated as a separate issue which is to be dealt with in a separate hearing. 


For further information please contact :

Karen Killington 

Paul Stewart

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