Who is the recipient?

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Who is the recipient?
  • Viability studies
  • Service companies
  • Issuing shares
  • Redrow
  • Third party legal costs

This guidance note provides an overview of the principles regarding who is the true recipient of a supply, because the party who pays for the supply may not necessarily be the recipient of the goods / services supplied. It is very important that the parties determine who received the goods / services supplied, as the recipient is the only party entitled to recover VAT incurred.

Some typical examples of situations where the recipient of the services may be unclear are explained below together with HMRC or the courts' view on who is the recipient of the supply.

Viability studies

Viability studies are usually requested by a bank or other financial institution considering lending money to, or investing in a client. Typically these types of studies are undertaken when a client requires a new loan or extension to an existing loan, or if the borrower has gone into receivership. The studies are normally carried out by a specialist organisation that has been appointed by the bank. The bank normally requires the client meets the cost of the study undertaken and this can result in difficulty in determining which party actually received the supply. HMRC considers the supply can only received by the party who contracted the study. This view has been confirmed in the tribunal case Eagle Trust.

Eagle Trust plc, MAN/93/1125 (VTD 12871) (subscription sensitive)

HMRC released Business Brief 6/95 (see VATSC93200) outlining its position.

The Business Brief confirms who is the recipient in following circumstances:

  • the bank commissions the work and receives the report. The supply of the report is to the bank since it is received for its business purposes and so the bank can recover input tax, subject to the normal rules. This applies even

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