Halifax applied in relation to a scheme for the recovery of input tax
InThe University of Huddersfield Higher Education Corporation v HMRC [2016] EWCA Civ 440, the Court of Appeal found that a scheme entered into to improve the university’s recovery of input tax was abusive.
The university made exempt supplies of education, as well as a few taxable supplies, so that it was only able to recover a small proportion of input tax. It had implemented a scheme to enable it to recover VAT incurred in refurbishing two buildings. Under the scheme, the university had waived the exemption in relation to the buildings and granted a lease to a specially created trust, which had also opted to tax and granted a repair lease back to the university. The university had then contracted with a wholly owned subsidiary for the works to be subcontracted to an independent building company.
It was accepted that the second limb of the Halifax test (Case C-255/02) was satisfied: the essential aim of the transaction had been to obtain a tax advantage. The issue was whether it had resulted in a tax advantage contrary to the purpose of the relevant provisions.
The court noted that the abusive tax advantage was the ability to deduct the whole of the input tax. This was different from Weald Leasing [2011] STC 596, where there had merely been a spreading of the payment of irrecoverable VAT over a period. Furthermore, the FTT had found as a fact that it had always been the intention of the university to collapse the leasehold structure. The court also agreed with the UT’s finding that the tax advantage had been obtained by the interposition of actors and transactions which had no other purpose and should therefore be disregarded when redefining the transaction.
Why it matters: The court noted that past history could not be completely rewritten. The fact that the university could have entered into a financing package, which would have achieved the same tax planning purpose and would not have been abusive, was irrelevant.
Halifax applied in relation to a scheme for the recovery of input tax
InThe University of Huddersfield Higher Education Corporation v HMRC [2016] EWCA Civ 440, the Court of Appeal found that a scheme entered into to improve the university’s recovery of input tax was abusive.
The university made exempt supplies of education, as well as a few taxable supplies, so that it was only able to recover a small proportion of input tax. It had implemented a scheme to enable it to recover VAT incurred in refurbishing two buildings. Under the scheme, the university had waived the exemption in relation to the buildings and granted a lease to a specially created trust, which had also opted to tax and granted a repair lease back to the university. The university had then contracted with a wholly owned subsidiary for the works to be subcontracted to an independent building company.
It was accepted that the second limb of the Halifax test (Case C-255/02) was satisfied: the essential aim of the transaction had been to obtain a tax advantage. The issue was whether it had resulted in a tax advantage contrary to the purpose of the relevant provisions.
The court noted that the abusive tax advantage was the ability to deduct the whole of the input tax. This was different from Weald Leasing [2011] STC 596, where there had merely been a spreading of the payment of irrecoverable VAT over a period. Furthermore, the FTT had found as a fact that it had always been the intention of the university to collapse the leasehold structure. The court also agreed with the UT’s finding that the tax advantage had been obtained by the interposition of actors and transactions which had no other purpose and should therefore be disregarded when redefining the transaction.
Why it matters: The court noted that past history could not be completely rewritten. The fact that the university could have entered into a financing package, which would have achieved the same tax planning purpose and would not have been abusive, was irrelevant.
