No more than is due

Cumbria College of Art and Design wished to refurbish its campus. It agreed to lease part of its campus to X a company which it wholly owned on terms which required X to develop the land to provide construction services and then surrender the lease back to the college.

X engaged the taxpayer to provide the construction services. The taxpayer used arm’s length contractors to supply the construction services. The aim of the scheme was to recover the input VAT on the building works.

Subsequently X reclaimed VAT of £588 746 which it had been charged by the taxpayer. HMRC refused the claim and assessed X to the VAT. X accepted this to be correct.

HMRC later decided that they did not consider the construction services supplied by the taxpayer to be real supplies or as supplies made in the course of business.

They said...