Two are not one

Effect of fiscal neutrality

The two associated companies Temple Finance (TF) and Temple Retail (TR) operated the ‘PerfectHome’ business which involved the sale of household goods to consumers. It was aimed at credit-constrained customers and most items were sold on hire-purchase terms with optional insurance and warranty.

TF provided finance and other services to customers; it was partially exempt and could recover only some of its input tax. TR supplied the goods and was wholly taxable so could recover all its input tax.

HMRC said the arrangements were intended to secure tax advantages and in reality only one business existed. The First-tier Tribunal allowed the taxpayers’ appeal. HMRC appealed.

The Upper Tribunal said TF and TR were separate legal entities that were separately registered for VAT purposes. They carried on separate economic activities and there was no evidence that the PerfectHome business was being conducted...