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VAT recovery in tripartite scenarios – recent UTT hearing

By December 15, 2016January 4th, 2018VAT news

The case of U-Drive (UDL) v HM Revenue & Customs was recently heard at the Upper Tier Tax Tribunal. The case was an appeal by UDL against a decision of the First Tier Tax Tribunal in relation to the recovery of VAT on costs incurred in tripartite arrangements.

UDL is a car and van self-drive hire business.

The FTT had decided, in agreement with HMRC, that where UDL incurred VAT on the cost of repairing damage caused by its vehicles to third party property this VAT was not recoverable. This decision was made notwithstanding the point that UDL had a contract with the repairer and incurred the costs in the course of its business of operating its van and car hire fleet.

The UTT carefully examined the case and the principles involved including Redrow and Airtours. The UTT was also interested in understanding what the case law means by the term “economic reality” when considering whether substance over contractual form should apply.

This is an interesting case in terms of the ongoing jurisprudence where there are 3 or more parties involved in commercial scenarios and to what extent the benefit of the arrangements can confer a right to VAT recovery as a result of one or more of the recipients being the party(ies) receiving the supply.

In terms of direct industry application, the decision which we expect early next year will be of interest to all businesses who have a large fleet of vehicles who manage costs of the damage caused directly rather than relying on the insurance process.

We have been directly involved with this case since the initial dispute with HMRC and instructed Counsel at both the FTT and UTT. If you would like to discuss the application of the case in more detail, please contact Sean McGinness on 01962735350 or