Agency v. Company A

Factual and Procedural Background

Company A is the representative member of a VAT-registered group of house-building companies. To accelerate sales of its newly built, zero-rated homes, Company A operated a “sales incentive scheme.” Under the scheme:

• Prospective purchasers, who usually had an existing home to sell, were offered the services of an estate agent chosen, instructed, and supervised by Company A.
• Company A undertook to pay the agent’s commission (including VAT) only if the purchaser completed the purchase of a Company A home.
• If the purchaser failed to proceed, the estate agent looked to the purchaser under a separate agreement.

Company A deducted the VAT on the agents’ invoices as input tax. The Agency (the tax authority) assessed Company A on the basis that the estate agents’ services were supplied solely to the purchasers, not to Company A. A VAT Tribunal allowed Company A’s appeal. A single judge of the High Court (Judge Potts) affirmed the Tribunal. The Court of Appeal reversed, holding that the services were not supplied to Company A. Company A appealed to the House of Lords, which delivered the present judgment.

Legal Issues Presented

1. Whether, for VAT purposes, the estate agents’ services were supplies to Company A, thereby making the associated VAT “input tax” deductible under section 14(3) of the Value Added Tax Act 1983.
2. Whether the “direct and immediate link” test derived from European case law confines the right to deduct to supplies that are directly and immediately linked to Company A’s taxable outputs.

Arguments of the Parties

Company A's Arguments

• The agents were instructed and controlled by Company A; the consideration (commission plus VAT) was, in relevant cases, paid by Company A.
• The services therefore constituted supplies to Company A, used exclusively for its taxable business of selling new homes.
• The Court of Appeal misapplied the “direct and immediate link” test from B.L.P.; that test concerns allocation between taxable and exempt outputs, not identification of the recipient of the supply.

Agency's Arguments

• The services “went” to the purchasers because their properties were valued and marketed; they were the final consumers of those services.
• VAT aims to burden the final consumer; Company A merely benefited incidentally.
• The European Court’s decision in B.L.P. mandates a focus on the objective recipient of the services, rendering Company A ineligible for deduction.

Table of Precedents Cited

Court's Reasoning and Analysis

The House of Lords adopted the findings and reasoning of Judge Hope and Judge Millett:

• “Supply” under section 3(2)(b) is broadly defined; any service rendered for consideration qualifies.
• The decisive inquiry is whether the taxpayer obtained anything for consideration that is used for its business. Company A obtained a contractual right to have the agents market the purchasers’ homes under Company A’s control—a service squarely within the statutory definition.
• That the purchasers simultaneously received services does not negate the parallel supply to Company A; a single set of acts can constitute supplies to more than one person.
• The Court of Appeal misapplied B.L.P.; that case addressed allocation where both taxable and exempt outputs exist. Here, all of Company A’s outputs are taxable, so the only question is whether the services were supplied to Company A.
• Once the agents’ services are accepted as supplied to Company A, the VAT on those services is input tax deductible in full, because the services are cost components of Company A’s taxable sales.

Holding and Implications

APPEAL ALLOWED. The estate agents’ services are supplies to Company A; the associated VAT is deductible input tax.

Implications: The decision clarifies that (1) a single set of services may be supplied to multiple parties for VAT purposes; and (2) the “direct and immediate link” test governs attribution between taxable and exempt outputs, not the preliminary identification of to whom a supply is made. The ruling provides practical guidance for businesses that fund third-party services to facilitate their own taxable activities.