VAT on professional fees invoiced to one party but paid for by another

The Issue

The Supreme Court has published its decision in the Airtours Holidays case, which concerns an issue that often confounds businesses – the recovery of VAT on professional fees invoiced to one party but paid for by another.

In this case, Airtours commissioned an accountants’ report to satisfy banks and other creditors as to the company’s viability.  A contract between the accountants and creditors was issued, specifying that Airtours would pay for the services provided under the contract.

It was decided (but only by a majority) that:

Firstly, it was clear from the contract that the services were supplied to the creditors, rather than Airtours.  Airtours’ signature on the contract did not affect this.

Secondly, whilst it is clear that Airtours benefitted in some way from the provision of the accountants’ services to the creditors, the majority of Lords did not believe this gave sufficient weight to Airtours being a recipient of the services.



The Court confirmed that it is not sufficient simply to be paying for a service to qualify for recovery of VAT charged on that service, even where an indirect benefit does accrue to the paying party, and even where that party was signatory to the engagement contract.  In this case, Airtours had benefitted but not directly from the services supplied by the accountants.  Instead, it was the creditors that had directly benefitted from the accountants’ advice, and Airtours only benefitted from the consequences of the creditors’ receiving that advice.

It seems that the Redrow principle to ( which enables recovery of VAT by the business paying for such services) is increasingly being discounted.

If there is an ‘economic reality’ that a paying party is actually also receiving a supply; this must clearly be set out in the engagement contracts in order to support the payer’s VAT recovery position.




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