[2009] UKFTT 256 (TC)

TC00201

Appeal number MAN/05/0792

VAT – deduction of input tax – did the paying party receive a supply – yes – appeal allowed.

FIRST-TIER TRIBUNAL

TAX 

	AIRTOURS HOLIDAY TRANSPORT LIMITED 
(Formerly) MY TRAVEL GROUP
		Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	
			Respondents

				TRIBUNAL: 	Richard Barlow
						Rayna Dean MA FCA

Sitting in public in Manchester on 22 and 23 June 2009

Andrew Hitchmough of counsel instructed by Price Waterhouse Coopers Legal for the Appellant

Rebecca Haynes of counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This is an appeal by Airtours Holiday Transport Limited which was formerly My Travel Group PLC against assessments totalling just over £1million issued by the respondents to recover what they assert was over claimed input tax.  The calculations of the sums assessed are not in dispute.
2.	The disputed input tax is wholly made up of VAT charged by Messrs Pricewaterhouse Coopers (a partnership) and subsequently by Pricewaterhouse Coopers LLP and we will refer to them as PwC.  The charges made by PwC relate to professional services consisting, in summary, of liaising with and making representations to banks and other creditors or bondholders of the appellant, carrying out a strategic review of its business and restructuring proposals, liaising with the Civil Aviation Authority and creating what was termed an entity priority model.  That work was wide ranging and highly technical work of a kind that only institutions such as PwC would be capable of carrying out, especially as there was a need for urgent action.
3.	The background to the work was that in 2002 the appellant faced a financial crisis that threatened the continuation of its business and its own existence.  The crisis arose from the fact that the appellant was indebted to banks and other financial institutions and creditors and had issued unsubordinated bonds to holders which amounted to finance of over £2 billion but accounting difficulties it had announced had caused a collapse in its share price and that led to refusals by some of the banks to allow it to draw down funds.  A rescue package involving the banks and other creditors and the bondholders became necessary, if the appellant’s business was to be saved from closure.
4.	The banks formed a steering committee led by two of them who were known as the Joint Lead Co-ordinators.
5.	The appellant’s case is that it received a supply or supplies consisting of the services provided by PwC and paid for those supplies and that they were received for the purposes of its business.  The respondents accept that the appellant paid for the services but contend that the supply was only to the banks and other institutions and not to the appellant so that even if the appellant benefitted from the services it has no right to deduct input tax, it being essential to the deduction of input tax that the tax should have been charged on a supply actually received by the deducting party.   
6.	We heard evidence from Mr Gregory McMahon a solicitor who had been the group company secretary of the appellant at the relevant time and from Mr Zubin Randeria a chartered accountant and partner in PwC who had been the lead partner concerned with the work in question.  Ms Haynes cross examined those witnesses to elaborate their evidence and we accept their evidence as the truth.  We read the witness statement of Mr Mark Barry and Mr Phillip Sarocka of the respondents. Their evidence was not disputed and consisted mainly of the production of documents and the explanation of the undisputed calculation of the assessments.  We read in detail the numerous documents produced to us.
7.	The engagement letters of which there are five and the standard terms of PwC are the most significant documents.  The first engagement letter was dated 5 November 2002 and is ten pages long.  It is addressed at the top “To the Engaging Institutions” and the following extracts are in our opinion the most relevant provisions:
“Introduction.
1.	This letter (“the Letter of Engagement”) confirms that we, Pricewaterhouse Coopers (“PwC”), have been retained by the institutions  defined at paragraph [ ] to provide the services (“the Services”) 
(Note: [ ] represents a space that was left blank in the original).
4.	Our reports and letters are for the sole use of the Institutions who have expressly agreed to this Letter of Engagement (“the Engaging Institutions”) by countersigning below. …
6.	To enable the institutions to develop views on the Group’s current financial position and financing needs, you have requested that we assist in providing information to the institutions providing facilities to the Group.
(Note: “the Group” is referred to by a pseudonym in the heading of the letter, presumably for reasons of confidentiality, the respondents took no point on this).
8.	Information and advice produced from this engagement letter is to be addressed to the Engaging Institutions with a copy to the directors of the Group, with the exception of any part of the report prepared exclusively or confidentially for the Engaging Institutions.
9.	We have a duty of care to the Engaging Institutions, as described in paragraph 4 relating to the contents of the Phase 1 report.  In the event that the RCF syndicate requires specific advice arising from the Group’s likely request to extend existing facilities, our duty of care in providing that advice will be solely to the RCF syndicate.  Given the varying positions of the individual institutions, the Engaging Institutions acknowledge they may require independent advice to supplement information provided by us under this engagement.   
10.	You accept that the aggregate limit referred to in paragraph 9 of our Terms and Conditions applies to our liability to the Group and the Engaging Institutions and any other party to whom we later agree to assume a duty of care taken together.

Scope of our services.
12.	You have requested us to undertake a review of the Group as set out below.  Our work is required by the Institutions in considering the level of facilities granted to the Group. 
[There follows a detailed explanation of what the work will consist of].
Fees.
22.	The Group will be responsible for our fees, expenses and disbursements incurred in carrying out our work.  Our fees will be based on  … .
25.	Original invoices will be sent to the Group with a copy to the RCF Syndicate agent.  Our terms are that a retainer of £200,000 be payable at the commencement of our work and that weekly invoices will be rendered to the Group.  Our invoices are payable on submission.
Terms and Conditions.
26.	The attached terms and conditions (“the Terms and Conditions”) have been agreed between the parties and set out the duties of each party in respect of the Services.  The Terms and Conditions provide that among other matters:
i.	the Group will indemnify us against claims brought by any third party.  For the avoidance of doubt, the reference to “you” in clause 10 of the Terms and Conditions (and only in that clause) refers to the Group and not the Engaging Institutions; and
ii.	our aggregate liability to the Group, the Engaging Institutions and any other party to whom we later agree to assume a duty of care taken together, whether in contract, negligence or any other tort, will be limited in accordance with clause 9.4 of the terms and Conditions.  For this purpose, our liability in respect of Phase 1 of the Services will in no circumstances exceed £10 million.  In the event that you request and we agree to provide services beyond Phase 1, the financial limit of our aggregate liability will increase to £25 million in respect of the Services and any additional services we provide to you.
iii.	the letter of Engagement and Terms and Conditions are together referred to as the Contract, and evidence the entire agreement between the parties.  For the avoidance of doubt, the Engaging Institutions and the Group both agree to all the terms of the Contract.
Acknowledgement and acceptance.
28.	Please acknowledge your acceptance of the terms of our engagement under the Contract by signing the confirmation below and returning one copy of this letter and a copy of the attached Terms and Conditions to us at the above address.

Confirmation and terms of engagement – the Group.
We confirm that the foregoing properly sets out the arrangements agreed between us, and we agree to the terms contained in this Letter of Engagement and the attached Terms and Conditions.  We also confirm that PwC will have unrestricted access to the Group’s books and records and the full co-operation of its directors and senior management who will keep you informed of any matters arising which they consider are relevant to your work.  If appropriate, you may instruct other professional parties to assist you and discuss with them the affairs of the Group.  We authorise the Engaging Institutions to disclose to you all relevant matters concerning the Group’s affairs and its bank accounts.  We authorise the RCF syndicate to debit your fees, expenses and disbursements to our current account on receipt by the agent to the RCF Syndicate of a copy of your invoice”.
8.	The subsequent engagement letters were also addressed at the top to the Engaging Institutions.  They were mostly to cover additional work.  A few clauses are relevant to the present appeal as follows:
Letter dated 14 January 2003.
“27. Original invoices will be sent to the Group with a copy to the RCF Syndicate agent.  Our terms are that monthly invoices will be rendered to the Group.  Our invoices are payable within seven days of submission, or otherwise as may be agreed between us and the Group”.
Confirmation and terms of engagement – the Group.  (Letter of 21 July 2003 and subsequent letters).
[This and subsequent confirmations are similar to the first one but, in particular, end with the following sentence:]
“We authorise the RCF Syndicate to debit your fees, expenses and disbursements to our current account on the basis agreed between the group and PwC as set out in the Contract or otherwise agreed between the Group and PwC”.
9.	PwC’s terms and conditions included the following:
“These terms and conditions (“the Terms and Conditions”) apply to the services (“the Services”) that we will provide to you pursuant to the attached letter of engagement (“the Letter of Engagement”).  The Letter of Engagement and the Terms and Conditions are together referred to as “the Contract”.  The Contract forms the entire agreement between us relating to the Services.  It replaces and supersedes any previous proposals, correspondence, understanding or other communication whether written or oral.
For the avoidance of doubt, “we” and “our” refers to Pricewaterhouse Coopers a United Kingdom partnership … and “you” and “your” refers to the entity or entities on whose behalf the attached Letter of Engagement was acknowledged and accepted.
9.4 The parties have agreed it is reasonable for PwC to limit its liability in connection with the provision of the Services.  Accordingly, our liability to pay damages for loss or damage, including consequential loss, suffered by you as a direct result of breach of contract, negligence, or any other tort by us in connection with the Services will be limited … [the limits are set out].
10 You agree to indemnify us to the fullest extent permitted by law against all liabilities, losses, claims, demands and expenses, arising out of or in connection with your breach of any terms of the Contract …  
10.	The respondents did no go so far as to contend that the appellant was not a party to a contract with PwC and they accept that there was a tri-partite contract between the appellant, PwC and the Engaging Institutions.  However, Ms Haynes contended that the tribunal must identify precisely what it was that PwC were doing for the appellant, if anything, before it can conclude whether or not there was a supply to the appellant.  That is no doubt a correct proposition.  The respondents’ case is that the appellant received nothing from PwC by way of a supply.  Although the appellant was obliged by the contract to pay PwC and provide information and access to its books etc PwC were not under any obligation to the appellant to render services to the institutions.
11.	We make the following observations about the terms of the Letters of Engagement and the Terms and Conditions.
12.	The Letters of Engagement are addressed to the Engaging Institutions which were clearly intended to be those referred to in clause 4 even though the clause number is left blank in clause 1 in the first engagement letter (the second letter does refer to clause 4).  The Engaging Institutions are referred to as having retained PwC (clause 1).  The reports and letters are for the sole use of the Engaging Institutions (clause 4).  Clause 9 provides that PwC owe a duty of care to the Engaging Institutions.  The work was required by the Institutions for the purpose of considering the level of facilities to be granted to the appellant (clause 12).
13.	 However, “you” by reason of the Terms and Conditions quoted in paragraph 9 of this decision includes all entities who have signed the Letter of Engagement.  Undoubtedly the appellant had signed them.  Those Terms and Conditions are terms of the contract together with those of the Engagement Letters, as was provided for by their opening words, also quoted in paragraph 9 above.
14.	Paragraph 12 of the Letter of Engagement says that “you” have requested PwC to undertake the work whilst also acknowledging that the work was required by the Institutions.  Ms Haynes contended that the general proposition that “you” includes all the parties who have signed the Engagement Letters was overridden by clause 26(i).  
15.	Ms Haynes relied strongly on a contention about the following wording in clause 26(i):
… “the reference to “you” in clause 10 of the Terms and Conditions (and only in that clause) refers to the Group and not the Engaging Institutions”.
She contended that means that everywhere else “you” only refers to the Institutions.  
16.	We do not agree.  The words “only in that clause” convey the natural meaning that clause 10 is different from other clauses.  We agree that it would be logically possible that the difference is that “you” refers to the Group alone in clause 10 and to the Institutions alone everywhere else.  That is not the natural meaning of the words used which suggest that elsewhere both are included in the word “you”.  Had it been intended to create a dichotomy where “you” meant one or the other of the Group or the Institutions wherever it appears the more natural wording would have been “refers [in clause 10] to the Group rather than the Engaging Institutions”.  In the context of the agreement as a whole and in light of the quite specific reference in the opening words of the Terms and Conditions there is a compelling argument for saying that “you” means the Group and the Institutions except in clause 10 where it means the Group alone.  
17.	That conclusion is strongly supported by the apparent logic which must have given rise to clause 10.  The Institutions’ role so far as their dealings with PwC were concerned was mainly passive and it was their intention that they should be provided with information they would use in their decision making vis-à-vis the appellant and they had quite clearly decided they were not prepared to risk any of their own money by paying for the work that PwC were to provide. In that context it was only natural that they would not wish to be at any risk of having to indemnify anyone for anything so far as that could be avoided as a matter of law (which of course it might not have been possible to do entirely so far as third parties were concerned).
18.	It follows that in clauses 6 and 12 of the Letter of Engagement the “you” who has requested the work includes the appellant.
19.	The legal position is that under section 24(1) of the VAT Act 1994 input tax includes any VAT on a supply of services to a taxable person which were services “used or to be used for the purpose of any business carried on” by the taxable person.  It is not in dispute that PwC’s services were rightly charged with VAT or that the appellant was a taxable person and was conducting a business.  What is in dispute is whether there was a supply to the appellant at all.
20.	A number of authorities were cited to us and we will set out the most relevant passages.
21.	In the well known case of Commissioners of Customs and Excise –v- Redrow [1999] STC 161 the House of Lords held in favour of the taxpayer which had paid for services supplied by estate agents which consisted of assisting house owners to sell their houses.  Redrow had agreed to pay the estate agents’ fees if the house owner bought a Redrow home.  Redrow selected and instructed the agents and instructions to the agent could only be changed if Redrow agreed.  The agents were advised though not instructed by Redrow to enter into a separate agreement with the vendor in case he did not proceed to purchase a Redrow home in which case Redrow would not be obliged to pay the agent.  
22.	The following passages in the speeches are particularly relevant to our consideration of this appeal:
From the speech of Lord Millet at pages 171a-f to 172c-e:
“The Commissioners begin by describing the services in question as the ordinary services of an estate agent instructed to market and sell his client's house. They then ask: to whom were those services supplied? Inevitably they answer: to the householder. They concede that the taxpayer derived a benefit from the services supplied by the agent and was accordingly prepared to pay for them; but they insist that this is irrelevant. The question is: to whom did the agent supply his services, not who derived a benefit from them? 
But this approach begs the question to be decided. The way in which the Commissioners describe the services dictates the answer. But it is equally possible to begin with the services which the taxpayer instructed the agents to perform. This would lead to a different definition of the services in question. They would not be the ordinary services of an agent instructed to market and sell his client's house, but the services of an agent instructed to market and sell a third party's house. The fact is that the nature of the services and the identity of the person to whom they are supplied cannot be determined independently of each other, for each defines the other. Where, then, should one begin? 
The solution lies in two features of the tax to which I have already referred. The first is that anything done for a consideration which is not a supply of goods constitutes a supply of services. This makes it unnecessary to define the services in question. The second is that unless the services are rendered for a consideration they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless the taxpayer has incurred a liability to pay it as part of the consideration payable by him for a supply of goods or services. 
In my opinion, these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction. Once the taxpayer has identified the payment the question to be asked is: did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services. 
It is sufficient that the taxpayer obtained something of value in return for the payment of the agents' fees in those cases where it became liable to pay them, and that what it obtained was obtained for the purposes of the taxpayer's business. Both those conditions are satisfied in the present case. It is not necessary that there should be "a direct and immediate link" between the services supplied by the agent and the sale of a particular Redrow home, although if it were necessary then this condition too would be satisfied on the facts of the present case. From the taxpayer's standpoint, which is what matters, the agent's fees incurred in the sale of a prospective purchaser's own home are not part of the taxpayer's general overhead costs but a necessary cost of and exclusively attributable to the sale of a Redrow home to that same purchaser. If the sale of the Redrow home were an exempt supply and not merely zero- rated, the agent's fees would not be deductible for the reasons given by the Court of Justice in the B.L.P. case”. 

From the speech of Lord Hope of Craighead at page 165j to 166d:
… “Clearly the estate agents were supplying services to the prospective purchasers, as they were engaged in the marketing and sale of the existing homes which belonged to the prospective purchasers and not to Redrow. But Redrow was prepared to undertake to pay for these services in order to facilitate the sale of its homes to the prospective purchasers. The estate agents received their instructions from Redrow and, so long as the prospective purchasers completed with Redrow, it was Redrow who paid for the services which were supplied. I do not see how the transactions between Redrow and the estate agents can be described other than as the supply of services for a consideration to Redrow. The agents were doing what Redrow instructed them to do, for which they charged a fee which was paid by Redrow. 
The word "services" is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of a business carried on by him which is done for a consideration. The name or description which one might apply to the service is immaterial, because the concept does not call for that kind of analysis. The service is that which is done in return for the consideration. As one moves down the chain of supply, each taxable person receives a service when another taxable person does something for him in the course or furtherance of a business carried on by that other person for which he takes a consideration in return. Questions such as who benefits from the service or who is the consumer of it are not helpful. The answers are likely to differ according to the interest which various people may have in the transaction. The matter has to be looked at from the standpoint of the person who is claiming the deduction by way of input tax. Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted Value Added Tax? The fact that someone else--in this case, the prospective purchaser--also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction”. 

23.	Mr Hitchmough also drew our attention to the case of Revenue and Customs Commissioners –v- Loyalty Management [2007] EWCA Civ 965 ([2008] STC 59).  That case concerned the operation by the taxpayer of a rewards scheme by which members of the public obtained points when spending money on goods or services which could be redeemed by obtaining goods or services from a range of suppliers (known as redeemers in this context) who charged the taxpayer for providing that service to it.  The taxpayer claimed the tax charged to it by the redeemers as input tax and the question arose as to whether that was a supply of services to the taxpayer.  Mr Hitchmough relied in particular on the following passage in the judgment of Chadwick LJ:
“38. The passages which I have set out provide clear authority for two propositions. First, there is no reason why, in a VAT context, a supplier (S) may not be treated as making, in the same transaction, both a supply of services to one person (P1) and a supply of different services to another person (P2). In Redrow the estate agent was plainly making a supply of services to the householder: those were the ordinary services provided by an estate agent to the client whose house he is instructed to market. But the estate agent was also making a supply of services to Redrow: the agent was acting on Redrow's instructions to market the existing house of its prospective purchaser. Second, in addressing a claim for input tax credit by a person (say, P2), to whom services have supplied in those circumstances, the relevant questions are (i) did P2 make a payment to S, (ii) was that payment consideration for services supplied to P2 and (iii) were those services used or to be used in the course of a business carried on by P2. The first of those questions is of importance in the context of the present appeal for reasons which will appear later in this judgment: if P2 made no payment to S (because the only payment was made by P1), P2 has no claim to input tax credit, as Lord Millett pointed out in the passage cited (ibid, 171e-f). The answer to the second of those questions is that the payment is to be treated as consideration if P2 obtained "anything at all" or (perhaps) "something of value" in return for that payment”.
24.	The parties in this case have asked us to proceed on the basis that that judgment is good law though the House of Lords has referred a question in respect of it to the European Court of Justice.
25.	Mr Hitchmough also cited WHA Ltd –v- Customs and Excise Commissioners [2004] EWCA Civ 559 ([2004] STC 1081) in which services consisting of motor repairs were held to have been supplied both to the vehicle owners and the appellant which was held in principle to be a supply to WHA on which it could claim input tax, although its appeal failed for other reasons, the following passages from the judgment of Neuberger LJ are relevant:
“34. The question in the present case, therefore, is whether, by carrying out work to a vehicle pursuant to a policy, a garage is supplying services to WHA, as WHA contend. In this connection, the Commissioners' argument is that the services are supplied to the policyholder because the works are carried out by the garage to his vehicle, and any parts involved in the works are installed by the garage into his vehicle. 
35.	When considering this issue, Lloyd J observed that 
"the contractual position is not conclusive as to what taxable supplies are made to whom, but it must be the starting point." (see paragraph 23 at [2003] STC 658H)
I agree.
… 
38. It further appears to me that the services in question are "supplied" to WHA. Again, the fact that they are also provided to the vehicle owner does not, to my mind, prevent them from being treated as "supplied" to WHA. The fact that WHA authorises and pays for the work, and, indeed, is rendered the invoice for the work, serves to underline this conclusion. Of course, if any of these steps could be regarded as sham or bogus, different considerations might well apply. But, at least unless it is necessary to resort to the further arguments, which impinge on the scheme as a whole, no such contention has been raised in the present case. 
39. As to the third requirement, once it is accepted that the work done by the garage constitutes the "supply of services" to WHA, I do not see how it could be suggested that the services so supplied are not "used … for the purpose of [WHA's] business". Indeed, I do not understand Mr Peacock to contend otherwise. 
40. Casting one's eyes more widely, I can see no reason for calling that conclusion into question. The suggestion that the vehicle owner, rather than WHA, is the person to whom the services should be treated as supplied has an initial attraction. However, such a conclusion suffers from the unattractive feature that the owner does not pay for the work, and receives no invoice in respect of it, and that, accordingly, even if the circumstances would otherwise justify someone recovering the input tax, there could be nobody entitled to recover the input tax, at least on the face of it. The owner could not recover input tax because he had not paid it, and neither could WHA, because although it had paid the VAT, it could not be treated as input tax because there would have been no supply of services to WHA. While I readily accept that there can be circumstances where such a dichotomy can arise, and while I accept that there may be regulations which avoid such dichotomies at least in certain circumstances, it appears to me that the court should certainly not lean in favour of analysis which results in such a dichotomy. Even assuming that Mr Peacock is correct in his contention that there cannot have been a "supply of services" both to the owner and to WHA, it appears to me that the proper analysis in the present case is that the services were "supplied" to WHA, albeit that they were also provided to the owner. 
…
53. Standing back, it appears to me unlikely in the extreme that the entitlement of a person in the position of Redrow or WHA to claim input tax could depend upon the precise degree of control which it exercises over the person who renders the invoice. Although it is plainly dangerous to generalise, it seems to me that to justify a claim for input tax in principle, it would normally be sufficient for the person presented with the relevant invoice to establish that he had authorised and paid for the work the subject of the invoice, and that he received a genuine benefit in the course of his business from the carrying out of the work”.
26.	From those authorities we derive the following propositions which we hold to be relevant to this appeal:
i.	If a service has been provided there is no need to define it.  Indeed to do so might lead to error.
ii.	If a supply is made for a consideration and it is not a supply of goods then it is a supply of services.
iii.	A supply of a service may consist of a right to have the service supplied to a third party.
iv.	The correct approach is to look at the question from the point of view of the paying party.  The person claiming the right to deduct input tax must identify the payment he claims he made and by which he claims he obtained something for the purposes of his business, which he therefore claims gave rise to the deduction.
v.	Provided he obtained anything at all that was used for the purpose of his business the right to deduct input tax will arise.
vi.	The fact that someone else also received a service as part of the same transaction as that received by the party making the deduction does not prevent deduction.
vii.	Questions such as who pays, who receives the invoice and who authorises the work will be relevant.
27.	 We should add two comments to the above propositions.  As to proposition (vi) it might be said that Lord Hope, by saying that the third party also received “a” service rather than “the service” (at the end of the passage quoted above), meant that the deduction by Redrow only arose because it received a different service to that of the householder.  We have no reason to think he did mean that and Chadwick LJ in Loyalty Management and Neuberger LJ in WHA both accepted that the same service might be supplied to both the deducting party and the third party without that affecting the right to deduct.  
28.	Proposition (vii) refers to questions relating to the evidence relevant to the issue whether or not the supply was for the purpose of the business of the deducting party.  The identity of the deducting party will always depend on whether he paid the supplier.
29.	Ms Haynes referred us to Telent PLC –v- Commissioners for HM Revenue and Customs (No. 19967) and Birmingham City Football Club –v- Commissioners of Revenue and Customs (No. 20151).  In both those cases the Tribunal held that the paying party had not received a supply (in Birmingham City’s case as to part only of what was in dispute) and so consequently had no right to deduct input tax.  Mr Hitchmough did not contend that a paying party can recover without having received a supply and so the issue between the parties is, as they both agree, whether or not the appellant received a supply or supplies from PwC.  Other professional advisers had been involved for whose services the appellant paid but for which it did not claim input tax, because it accepted it had not received a supply, even though it had arguably benefitted from their activities, but that is in our opinion irrelevant to the question we have to decide.
30.	We hold that the appellant did received supplies from PwC which it used for the purposes of its business and so is entitled to deduct the input tax.
31.	We have already held that “you” in the Engagement Letters and the Terms and Conditions refer to the appellant, albeit as well as to the banks and the other institutions and by signing the documents the appellant became a party to the contract which those documents created.  The appellant thereby authorised PwC to do the work and made a binding promise to pay for the work.  The authorisation was given effect by the payment of the £200,000 retainer fee provided for by clause 25 of the Engagement Letter and which was payable “on the commencement of our work”.  Authorisation for the work was continually renewed by payments of the weekly invoices and the subsequent Engagement Letters which extended the scope of the work in some cases.
32.	The confirmation and terms of engagement signed by the appellant on the first and subsequent Engagement Letters is both specific and sufficient to establish that they were a party to a contract with PwC and that is further re-enforced by the Terms and Conditions and the form of the Engagement Letters themselves.
33.	That the contract thereby established involved supplies of services to the appellant seems to us, and we hold it to be the case, to be quite clear.  The contract amounts to an agreement for work involving a supply to the appellant in at least the following specific respects.  
34.	Clause 8 of the Engagement Letter promises that the appellant will receive a copy of a report which will first have been discussed with its management (clause 19).  
35.	Clause 12 shows that the appellant had requested the review.  It might be said that the fact that that clause also refers to the review having been required by the Institutions means it was a supply to those Institutions rather than to the appellant but we do not agree.  The appellant was under no legal obligation to provide such a review to the Institutions and the reference to the Institutions requiring it merely acknowledges that the appellant needed, for practical reasons, a review that it could place before the Institutions.  Such a review could have been obtained by the appellant without the Institutions being a party to its preparation but such a review would have carried less (possibly very little) weight with the Institutions.  Practicalities therefore required that the Institutions should be involved in the process but nonetheless it was the appellant who needed the review and authorised the work that gave rise to the review.  The fact that the appellant was under no legal obligation to provide the review or report to the Institutions does not mean that, even though it had been agreed the Institutions would be parties to the contract for its preparation, the supply ceased to be a supply to the appellant.  The work of PwC was needed by the appellant and it is our holding that the appellant authorised it and secured it for its own purposes.  It was not obtained purely for the purposes of the Institutions.  That is clear from the terms of the contract itself.     
36.	That the appellant needed the work by PwC and its results is fully confirmed by the oral evidence of the witnesses for the appellant.  We have already recorded that we accept that evidence was entirely truthful.  In particular Mr McMahon in his witness statement (which stood as his evidence in chief and in respect of which he was not challenged on this point) said this: “… My Travel were keen to have an adviser reviewing the plans for the business and to provide confirmation to the Steering Committee that, based on the information available at the time, the agreed actions were reasonable.  When determining who to appoint to provide this assistance it was necessary to appoint an adviser that was acceptable to the Steering Committee and My Travel and I note that My Travel had a role in the decision making process as to who was going to be appointed”.
37.	Having held that there was a supply to the appellant we need only add that it is very obvious that the appellant needed and used that supply for its business purposes.  It could have been required for no other purpose.
38.	It follows that the appellant was entitled to deduct the input tax in question and that the appeal is allowed.  If the appellant wishes to apply for a direction that the VAT Tribunal Rules should continue to apply to this appeal after 1 April 2009, when they were replaced by the First Tier Tribunal Rules subject to transitional provisions, and to apply for a direction as to costs, it is directed to do so within three months of the release of this Decision and the respondents are directed to reply to any such application within one month of its being made.  Those directions apply to an application in principle and the amount claimed need not be calculated at that stage.  Any question of how and when the costs, if any are awarded, should be assessed will be addressed only if such an application is made and granted in principle, unless the parties agree the method of assessment. 

TRIBUNAL JUDGE
RELEASE DATE: 2 October 2009