Commercial or artificial?

The taxpayer was a loan broker in the UK. His services were exempt from VAT meaning he was unable to reclaim the VAT on advertising services supplied to him. He attempted to rectify his position by incorporating a company Alabaster in Jersey.

Broking contracts were made between the company and the lenders resulting in commissions being paid to Alabaster instead of to the taxpayer.

The company did not process the applications but paid fees to the taxpayer for the use of his services. In practice borrowers contacted the taxpayer in the UK who processed the applications and sent them to Jersey for authorisation. No request for authorisation was refused. Advertising services were also supplied to Alabaster.

HMRC said the ad services were in effect being supplied to the taxpayer in the UK and were taxable. The First-tier Tribunal allowed the taxpayer’s appeal and...