HMRC loses Cowdenbeath Taxi case after contradictory arguments

In Cowdenbeath Taxi Services Limited v HMRC [2021] UKFTT 43 TC/2018/01656, the First Tier Tribunal (FTT) concluded VAT was not due on services between the companies and the Error Correction Notice submitted was sufficient to make a claim for the repayment of VAT.

Cowdenbeath Taxis provided car rental, telephony services and fuel to the related companies, the ‘Fife Companies’ which in turn provide taxi services. This appeal has been a long-running dispute between Cowdenbeath Taxis and HMRC as to what services are provided and who should account for VAT.

• HMRC had consistently stated that Cowdenbeath Taxis’ main business was the provision of taxi services.
• HMRC also formed the view that Cowdenbeath Taxis had provided car rental, telephony services and fuel to the Fife Companies as a principal and that VAT output tax was due on these supplies.

In this appeal, Cowdenbeath Taxis stated it had accepted HMRC’s position that Cowdenbeath Taxis acted as a principal in providing services to the Fife Companies that were used to provide the taxi services.

• Consequently, Cowdenbeath Taxis stated that they and the Fife Companies formed a de facto VAT group and therefore VAT was not due on the invoices that Cowdenbeath Taxis issued to the Fife Companies.
• Accordingly, Cowdenbeath Taxis issued credit notes for all such invoices and claimed a refund of the VAT paid in respect of such invoices.
• Cowdenbeath Taxis also argued that the refund had to be paid in order to avoid unjust enrichment by HMRC and set out their reasoning and the legal precedents that supported their case.

The FTT considered that HMRC's case appeared contradictory in that if Cowdenbeath Taxis provided the car hire, telephony and fuel services to the Fife Companies to enable the Fife Companies to provide taxi services, Cowdenbeath Taxis cannot also be providing such taxi services to those third parties.

• If Cowdenbeath Taxis provided taxi services using its own cars, phone services and fuel and received all of the revenue from such taxi services, there is no purpose or value for the Fife Companies in receiving or paying for such cars, phone services, or fuel.
• The FTT concluded that it would not be appropriate to pay VAT on services on supplies between Cowdenbeath Taxis and Fife companies as they were either valueless or illusory. The FTT dismissed HMRC’s arguments and allowed the appeal.  

Useful guides on this topic

VAT: Groups
VAT grouping allows two or more 'UK bodies corporate' to be treated as a single person for VAT if certain conditions are met.

Reclaims and unjust enrichment
Claims for VAT repayments can be made by a VAT registered business that has under-claimed input VAT on purchases or over-paid output VAT on sales.

Goods or services for VAT?
What are goods and what are services for VAT? The answer may have an impact on the time of supply, the place of supply and in some cases the rate of the supply. The answer is not always as straightforward as it may seem.

External Link

Cowdenbeath Taxi Services Limited v HMRC [2021] UKFTT TC/2018/01656