Corporation tax
FTT decision on valuation method upheld
The Upper Tribunal (UT) has ruled on the correct valuation and allocation of acquisition costs for care homes purchased by the taxpayer, affirming the decision of the First-tier Tribunal (FTT) to apply market value, adjusted by special assumptions, as the proper method for valuation under GAAP.
The taxpayer acquired five care homes between April 2004 and May 2007 and allocated purchase prices among freehold property, goodwill and fixtures/fittings. The issue affected deductions for corporation tax purposes, as goodwill amortisation depends on the purchase price allocated as per GAAP. The taxpayer argued a depreciated replacement cost should be used as there is no active market for non-operational care homes.
The UT agreed that the FTT had sufficient evidence that operational care homes were ‘similar in type and condition’ to the assets being valued, and it was therefore entitled to suggest the use of a market value, adjusted by special assumptions, as per GAAP and RICS guidance. The tax amortisation calculations and allowances needed to be recalculated accordingly.
Nellsar Ltd v HM Revenue & Customs [2025] UKUT 164 (TCC)
From Tax Update July 2025, published by S&W Partners LLP
Consortium relief restricted as tax advantage considered main purpose of structure
The First-tier Tribunal (FTT) agreed with HMRC on the correct method for calculating the level of consortium relief available where the group structure involved link companies. It also restricted the relief, as the corporate structure had a main purpose of achieving a tax advantage.
The taxpayer sought to claim consortium relief to offset losses of other companies in a different corporate group. The taxpayer’s eligibility for consortium relief depended on ‘link companies’ that held voting power, share capital and distribution rights. The taxpayer argued that the ownership proportion under s144, Corporation Tax Act 2010 (CTA 2010) should be calculated by aggregating the entitlements of the three link companies, resulting in an ownership proportion of 74%. HMRC argued that the link companies’ proportions should be taken collectively, and the legislation did not permit multiple counting of the same interests. HMRC also submitted that the corporate structure was designed primarily to achieve an enhanced level of relief, and so available relief should be restricted under s146B, CTA 2010.
The FTT adopted a purposive approach, stating that the legislation’s aim was to calculate genuine proportional entitlements without double counting interests which could lead to absurd outcomes of more than 100%. The FTT also concluded that achieving enhanced consortium relief was a main purpose of the structure, as it could find no commercial rationale for the unique shareholding, voting thresholds and governance arrangement.
The FTT agreed with HMRC that the correct ownership percentage under the legislation was 40%, but as achieving a tax advantage was a main purpose of the corporate structure, relief should be restricted to 20% under.
Eastern Power Networks Plc v HM Revenue & Customs [2025] UKFTT 703 (TC)
From Tax Update July 2025, published by S&W Partners LLP
Appeal relating to degrouping charge on goodwill dismissed
The First-tier Tribunal (FTT) has dismissed the taxpayer’s appeal in the capital gains degrouping charge case of Currys Retail Limited.
Between 2004 and 2007, The Carphone Warehouse Limited (CPW) acquired the businesses of various companies within the Carphone Warehouse group, including £108m of goodwill. In 2008, the CPW group decided to enter into a joint venture that would result in a capital gains tax degrouping, however by this time the value of the goodwill had declined to £51m. A transaction was therefore entered into whereby CPW sold the goodwill and right to carry on the businesses to Best Buy UK CP Limited (BBUK), a then unrelated party, with the intended result that a liability to corporation tax on chargeable gains would only arise on the lower figure of £51m, and no charge to corporation tax on chargeable gains would arise in the hands of CPW in respect of the goodwill when the degrouping occurred. However, HMRC disagreed and issued a partial closure notice (PCN) concluding that a degrouping charge under s179(3), Taxation of Chargeable Gains Act 1992 arose on £108m of goodwill attached to the businesses upon formation of the joint venture, resulting in additional corporation tax of £30m being due.
The FTT found that, on a realistic view of the facts, the businesses and goodwill remained with CPW following the transaction. The asset acquired by BBUK was neither the goodwill nor the businesses but rather the right to receive payments equal to a fixed percentage of the future gross revenues of the businesses. The charge described in the PCN was therefore correct.
Currys Retail Limited v HMRC [2025] UKFTT 762 (TC)
From the Business Tax Briefing dated 18 July 2025, published by Deloitte
VAT
Export evidence
In 2016, H Ripley & Co Limited (HR) sold scrap metal to Recylink International, which it treated as zero-rated supplies on the basis that the goods were removed to Belgium. In 2017, HMRC assessed HR for VAT on the basis that evidence put forward to show the scrap metal was removed from the UK was insufficient to meet the conditions and time limits regarding proof of evidence of removal as set out in VAT Notice 725. The documents held by HR included sale invoices, bank statements, weighbridge tickets, international consignment notes (CMRs), emails, and WhatsApp messages. HR also obtained P&O boarding cards, albeit more than 18 months after the transactions took place.
The First-tier Tribunal (FTT) refused HR’s appeal against HMRC’s assessment, and the Upper Tribunal (UT) has upheld the FTT’s decision. The UT agreed with HMRC and the FTT that the issue in point was whether HR held sufficient evidence of removal, and not whether the goods were actually removed. Whilst it was common ground that there was no single document that in itself proved that the goods were removed from the UK, HR argued that the FTT failed to consider whether the documents, when considered together, established its case. The UT upheld the FTT’s conclusion that, due to various deficiencies, the documents, when considered in combination, did not evidence the scrap metal’s removal from the UK.
The UT also upheld the FTT’s decision to exclude evidence obtained after the three-month time limit, which is set out in VAT Notice 725 and has force of law, in particular the P&O boarding cards, whilst noting that the FTT had concluded that this evidence would not have made any difference to its findings. HR failed to satisfy the conditions for zero-rating, and the UT dismissed HR’s appeal.
H Ripley & Co Ltd v HMRC [2025] UKUT 00210 (TCC)
From the Weekly VAT News dated 7 July 2025, published by Deloitte
Valuation of intra-group charges
Högkullen AB was the parent company of a Swedish real-estate management group. Högkullen’s subsidiaries were partially VAT exempt, and unable to fully recover input tax. Högkullen supplied management services to its subsidiaries, for which it invoiced approximately SEK 2.3m in 2016, calculated on a ‘cost-plus’ basis. Högkullen incurred shareholder and fund-raising costs, which it did not take into account when calculating the intra-group charges. The total costs incurred by Högkullen in 2016 were approximately SEK 28m. To the extent these costs were subject to VAT (about half of the amount), Högkullen fully recovered the input tax.
Under the EU Principal VAT Directive, EU member states may value a supply at open market value (OMV) where a supplier and recipient have close ties, the consideration is less than the OMV, and the recipient is not able to deduct input tax in full. The OMV is the amount payable on the open market for a comparable service, but where this cannot be ascertained, it is an amount not less than the full cost to the supplier of providing the service. The Swedish tax authorities considered that Högkullen’s intra-group supplies constituted a single supply, the consideration for which was less than the OMV. Therefore, as there was no comparable price on the open market, the OMV would be at least equal to the full cost incurred by Högkullen of providing the service.
The Court of Justice of the European Union (CJEU) has held that the tax authorities could not assume that a parent company making supplies of active management services to its subsidiaries was making a single supply thereby precluding the OMV of those services from being determined using a comparison method. With respect to the question of whether the totality of costs incurred by Högkullen, including the shareholder and fund-raising costs, should be included in calculating the OMV, the CJEU considered that this was based on the premise that in the case of active management by a parent there are no comparable services. Given the CJEU’s findings, it concluded that it was not necessary to address this issue.
Högkullen AB v Skatteverket [2025] Case C‑808/23
From the Weekly VAT News dated 7 July 2025, published by Deloitte
Financial intermediation services
Performance Leads Limited (PL) offers ‘lead generation’ services to independent financial advisors (IFAs). Individuals seeking financial advice can provide their requirements through PL’s websites, and PL will refer them on to the relevant IFAs, receiving a fee per lead from the IFAs. PL originally took the view that its supplies were standard-rated, but subsequently decided that its supplies were financial intermediation services and VAT exempt, and made a claim to HMRC for overpaid VAT, which HMRC refused.
The First-tier Tribunal (FTT) has held that PL’s supplies were VAT exempt. HMRC argued that PL was providing standard-rated advertising services or acting as an intermediary for non-exempt supplies. The FTT considered that PL was providing intermediary services, acting in an intermediary capacity, as it was bringing together individuals seeking financial services and IFAs, who provided financial services. In the FTT’s view, PL was not engaged in advertising. Nor was it acting as a mere conduit, as it assessed inquirers’ suitability for the IFAs’ services through its websites. The FTT found that “PL therefore was doing enough – in our view, easily enough – to ‘cross the line’ from being a mere conduit or advertiser into being an intermediary introducing the sort of person from whom IFAs might be able to make money”. The FTT allowed PL’s appeal.
Performance Leads Limited v HMRC [2025] UKFTT 660 (TC)
From the Weekly VAT News dated 30 June 2025, published by Deloitte
Out of time assessment
Conservatory Insulations Northwest Limited (CIN) appealed against an assessment made by HMRC as a result of an error correction notice (ECN) filed by CIN. The only issue between the parties was whether the assessment was made within the one-year time limit in which HMRC must make an assessment after evidence of the facts sufficient to justify the assessment comes to their knowledge. The First-tier Tribunal (FTT) has held that the assessment was out of time.
On 15 July 2022, CIN filed an ECN with HMRC, which HMRC acknowledged on the same date by way of an automatically generated email. On 22 May 2023, the ECN was again provided, after a follow-up phone call revealed that HMRC had no record of the ECN. On 27 June 2023, an HMRC officer completed the relevant form to make the assessment, which required the counter-signature of a more senior officer. The senior officer provided the counter-signature on 18 July 2023. On 22 July 2023, HMRC notified the assessment to CIN. HMRC argued that the assessment was made on 27 June 2023, whereas CIN argued that the assessment was not made until it was counter-signed or, alternatively, when it was notified. The FTT held that, because a counter-signature was required and the senior officer did not provide the counter-signature until 18 July 2023, the assessment was made more than one year after HMRC’s receipt of CIN’s ECN. Accordingly, the FTT allowed CIN’s appeal.
Conservatory Insulations Northwest Limited v HMRC [2025] UKFTT 705 (TC)
From the Weekly VAT News dated 30 June 2025, published by Deloitte
Single and multiple supplies
JPMorgan Chase NA (CBNA) supplied services to JPMorgan Securities plc (SPLC) under an intercompany contract, namely business delivery services (BDS), relating to the trading infrastructure, and support services, more generic services, such as HR and legal. HMRC considered that the services formed a single taxable supply, whereas CBNA argued that there was a separate supply of support services (taxable) and multiple supplies of BDS to different SPLC business areas (VAT exempt).
The First-tier Tribunal (FTT) found that all the elements under the contract formed a single taxable supply, focusing on the fact that they worked together to provide “everything that it (SPLC) needs to enable it to achieve its aim of regulatory compliant trading”. Given that conclusion, it was not necessary for the FTT to consider whether exemption applied to the separate supplies, but it considered the issue briefly, concluding that none of the BDS qualified for exemption.
The Upper Tribunal (UT) has upheld the FTT’s decision, confirming that there was a single taxable supply. The UT supported the FTT’s conclusion that the contracts could be relied upon as providing a complete picture of the economic reality between the parties. The UT also confirmed that the narrow approach to interpreting the scope of exemptions set out by the Supreme Court in the case of Target Group Ltd, concerning the exemption for payment services, also applied to the exemption for securities, meaning the securities exemption should only apply to services that themselves alter the legal and financial relationship between parties to a securities transaction. The UT concluded that this test was not met with respect to CBNA’s services; CBNA merely provided infrastructure and fulfilled administrative functions surrounding transactions in securities. The UT dismissed CBNA’s appeal.
JPMorgan Chase Bank NA v HMRC [2025] UKUT 188 (TCC)
From the Weekly VAT News dated 23 June 2025, published by Deloitte
VAT treatment of medication supplied to outpatients
Clatterbridge Pharmacy Limited (CPL) is a subsidiary of Clatterbridge Cancer Centre NHS Foundation Trust. The Trust specialises in the treatment of cancer, and CPL operates pharmacies dispensing medication to outpatients of the Trust. One of the elements of CPL’s business is supplying intravenous (IV) and injectable cancer medication to patients of the Trust who receive care in their own homes. The medication is administered to patients by healthcare professionals, with CPL charging the Trust a fee.
The First-tier Tribunal (FTT) has held that the supplies were zero-rated on the basis that the medication was provided for patients’ ‘personal use’, in accordance with Item 1, Group 12, Schedule 8, Value Added Tax Act 1994. HMRC argued that zero-rating would only apply where medication was self-administered. HMRC were of the view that ‘personal use’ equated to use as a private individual, ie, self-administered medication was for ‘personal use’, whereas medication administered by a healthcare professional was not. HMRC argued that notes are clarificatory only, and not determinative. Accordingly, Note 5A in Schedule 8 (which provides that ‘personal use’ does not include medication provided to patients in hospitals) means that ‘personal use’ in Item 1 excludes situations where medication is administered by a healthcare professional, regardless of the location.
The FTT considered that HMRC’s interpretation was too restrictive. Agreeing with CPL, the FTT concluded that the concept of ‘personal use’ included use in a private setting, even if the medication, as in this case, was not self-administered. The FTT allowed CPL’s appeal against HMRC’s decision that its supplies were standard-rated.
Clatterbridge Pharmacy Limited v HMRC [2025] UKFTT 661 (TC)
From the Weekly VAT News dated 23 June 2025, published by Deloitte
Practical Points
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