Property developers in taxing dispute

The Redrow Group has been given leave to take its case against the VAT men to the House of Lords, reports Roger Pearson. A long-running battle between property developer the Redrow Group and Customs & Excise over the VAT status of a vital element of a property incentive purchase scheme is to go to the House of Lords.

Under the scheme, Redrow paid the fees of estate agents who sold existing homes of potential purchasers of Redrow homes. The legal row dates back to March 1995 when a VAT tribunal held that tax on the agent's fees paid by Redrow was allowable as input tax.

In December of that year an appeal to the High Court by the VAT men against that decision was dismissed.

But in June this year the VAT men won a reversal of that ruling. An appeal by them against the decision was allowed by Lords Justices Simon Brown and Peter Gibson with Mr Justice McCullogh.

Now at a private hearing in the House of Lords, Lords Lloyd, Nolan and Clyde have granted leave for an appeal to them by Redrow against the Appeal Court decision.

The appeal judges held that, in order for Redrow to deduct tax paid on the services supplied, the services in question had to have had a direct and immediate link with the taxable transaction.

They took the view that the ultimate aim of Redrow was irrelevant and that for the purposes of VAT there were two distinct transactions. These were the sale by the purchaser of his home and the sale by Redrow of a new house.

They considered that the agent's services were supplied and the fees incurred in the sale of the purchaser's home. This was a service provided to the prospective purchaser and not to Redrow.

In those circumstances they took the view that the agent had not supplied Redrow with a service and Redrow was not therefore entitled to recover tax paid to the agent as allowable input tax.

Redrow instructed an agent of its choice and agreed a price for the existing home of a prospective purchaser of one of its new properties. When contracts were exchanged in respect of a property the agents then sent Redrow an invoice.

Redrow in turn claimed it had received the services within s14(3) (a) of the 1983 VAT Act and was entitled to recover the tax it paid the agent as allowable input tax.