Commercial purpose

Tripartite VAT – was economic reality consistent with contractual position?

The taxpayer U-Drive carried on a vehicle self-hire business. When a car or van was involved in an accident that caused damage to a vehicle belonging to a third party U-Drive would sometimes agree that rather than claiming off insurance it would pay for the repairs. U-Drive contracted with a car repair business to carry out the work; there was no contract between the third party and the repairer. The repairer sent the invoice to U-Drive which it paid.

In September 2013 U-Drive claimed a repayment of VAT incurred on the repairs. HMRC refused it.

The issue was whether the supplies by the repairers were made to U-Drive or to the third parties. If to the former it could deduct VAT.

The First-tier Tribunal dismissed U-Drive’s appeal holding that the repairs...