Rental invoices issued to a separate limited company

The taxpayer was a partnership which traded as solicitors and legal advisers. Due to a problem with the Law of Property Act 1925 the partnership could not enter into a lease agreement with the landlord for its trading premises because it had more than four partners. The lease was instead agreed with a dormant associated company Ashtons Legal Ltd with the following outcome:

• the partnership would still pay all rent to the landlord;
• the premises were wholly used for the taxable business supplies of the partnership;
• the rental invoices were addressed to the limited company in accordance with the lease but sent directly to an employee of the partnership.

HMRC ruled that the partnership could not claim any input tax on the rental invoices because the supply of land services was from the landlord was to the company. The onward supply from the company to the partnership...