Was a partnership the recipient of legal services?
In Apartnership v HMRC [2015] UKFTT 161 (31 March 2015), the FTT found that a partnership was not the recipient of services provided to its partners.
The decision was anonymised. The partnership comprised four partners, Mr A, Mr B, Mr C and Mr D.
Mr D was approaching the specified retirement age. Before he retired, he consulted solicitors, which wrote letters to Mr A, Mr B and Mr C. The solicitors alleged bad faith against Mr A and Mr B and required the dissolution of the partnership.
On receipt of the solicitors’ letters, Mr A and Mr B had consulted the same firm of solicitors; and Mr C had chosen to instruct a different firm. HMRC had disallowed the input tax on the legal bills, on the basis that the solicitors’ client was not the partnership.
Mr A, Mr B and Mr C contended, however, that the existing partnership was the client; or, alternatively, that a future partnership comprised of Mr A, Mr B and Mr C was the client. Both contentions were robustly rejected, as the solicitors could not have been advising the partnership in circumstances where its partners had opposing interests; and Mr C’s solicitor did not act for Mr A and Mr B, so that a future partnership could not be its client. The FTT also noted that the partners had not exercised their power to contract on behalf of the partnership (Partnership Act 1890 s 5), as the engagement letters were addressed to the individual partners.
Additionally, it was not enough to show that the partnership benefitted from the solicitors’ services. Following Airtours [2014] EWCA Civ 1033 and Redrow [1999] UKHL 4, the partnership must be a party to the contract and it must be liable to pay the fees. The services were therefore not supplied to the partnership, regardless of the fact that it reimbursed the fees to its partners. Finally, the FTT added that as the invoices had been issued to the partners and not to the partnership, it did not hold a valid VAT invoice for the purpose of the VAT Regulations 1995.
Why it matters: This case is a useful example of the application of the principles established in Redrow. A taxpayer will not be the recipient of a supply, simply because it benefits from it.
Was a partnership the recipient of legal services?
In Apartnership v HMRC [2015] UKFTT 161 (31 March 2015), the FTT found that a partnership was not the recipient of services provided to its partners.
The decision was anonymised. The partnership comprised four partners, Mr A, Mr B, Mr C and Mr D.
Mr D was approaching the specified retirement age. Before he retired, he consulted solicitors, which wrote letters to Mr A, Mr B and Mr C. The solicitors alleged bad faith against Mr A and Mr B and required the dissolution of the partnership.
On receipt of the solicitors’ letters, Mr A and Mr B had consulted the same firm of solicitors; and Mr C had chosen to instruct a different firm. HMRC had disallowed the input tax on the legal bills, on the basis that the solicitors’ client was not the partnership.
Mr A, Mr B and Mr C contended, however, that the existing partnership was the client; or, alternatively, that a future partnership comprised of Mr A, Mr B and Mr C was the client. Both contentions were robustly rejected, as the solicitors could not have been advising the partnership in circumstances where its partners had opposing interests; and Mr C’s solicitor did not act for Mr A and Mr B, so that a future partnership could not be its client. The FTT also noted that the partners had not exercised their power to contract on behalf of the partnership (Partnership Act 1890 s 5), as the engagement letters were addressed to the individual partners.
Additionally, it was not enough to show that the partnership benefitted from the solicitors’ services. Following Airtours [2014] EWCA Civ 1033 and Redrow [1999] UKHL 4, the partnership must be a party to the contract and it must be liable to pay the fees. The services were therefore not supplied to the partnership, regardless of the fact that it reimbursed the fees to its partners. Finally, the FTT added that as the invoices had been issued to the partners and not to the partnership, it did not hold a valid VAT invoice for the purpose of the VAT Regulations 1995.
Why it matters: This case is a useful example of the application of the principles established in Redrow. A taxpayer will not be the recipient of a supply, simply because it benefits from it.
