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Airtours Holiday Transport Limited v The Commissioners for Her Majesty’s Revenue and Customs (2014) EWCA Civ 1033

15-September-2014 9:58
in General
by Admin


Whether Airtours Holiday Transport Limited (formerly MyTravel Group plc) (“Airtours”) was entitled to recover, as input tax, VAT charged by PricewaterhouseCoopers LLP (“PwC”) in relation to services they provided and for which Airtours paid.


In 2002, Airtours was in serious financial trouble and was indebted to a number of institutions, including 80 banks (“the Banks”), which had provided credit. Between £2-2.5 billion was owed by Airtours. PwC and KPMG were approached to potentially undertake advisory work (reviewing Airtours’ financial position and financing needs).

PwC were later engaged in November 2002. PwC’s initial letter of engagement, dated 5 November 2002, contained a contract. The parties to that contract were PwC, “the Group” (Airtours) and “the Engaging Institutions” (the Banks). Paragraph 12 of the letter reads “Our work is required by the Institutions…” and Airtours were responsible for fees, expenses and disbursements. Four further letters of engagement setting out subsequent phases of work were sent but were in similar terms. Airtours then sought to deduct the VAT. HMRC argued that the services of PwC were not supplied to Airtours but rather the Banks.

Previous Proceedings

1)      First-tier Tribunal (02.10.09) – The First-tier Tribunal rejected HMRC’s approach. Airtours were to have a copy of the report, requested the review and needed the work. Airtours had received supplies from PwC that were used for the purposes of its business. Therefore, Airtours was entitled to deduct input tax.

2)      Upper Tribunal (08.11.10) – The Upper Tribunal disagreed with the First-tier Tribunal’s approach and concluded that there was a supply of services by PwC to the Banks, which they needed for the purposes of their own businesses. Paragraph 22 of the decision reads “…the fact that Airtours received a copy of the report was more of a courtesy than the receipt of the supply of PwC’s services.”The Upper Tribunal considered the First-tier Tribunal to have made errors in law.


Airtours’ counsel argued, relying on CCE v Redrow Group plc [1999] 1 WLR 408 (“Redrow”), Supreme Court and CJEU cases, that “…what was relevant was to look whether the expenditure had been incurred for the needs of an economic activity engaged in by the taxpayer” [39].

In contrast, counsel for the Banks submitted that “…the economic reality was that the services were being provided to the Engaging Institutions and not the appellant, who merely providing third-party consideration” [40]Furthermore, Redrow was distinguishable. Alternatively, counsel for the Banks contended that if the First-tier Tribunal had come to the correct decision and a supply was made to his clients and Airtours then the First-tier Tribunal ought to have considered apportionment.


Lady Justice Gloster was of the view that Redrow supported the analysis that 2 separate supplies were made to – Airtours and the Banks. Lady Justice Gloster stated that the “…supply of the service of liaison, review etc, and reporting to the Engaging Institutions was provided to the appellant pursuant to the Contract which conferred a contractual right on the appellant to have such work carried out for the purposes of PwC reporting to the Engaging institutions” [42(i)]. Her conclusion was supported by various reasons including, in Lady Justice Gloster’s opinion, references to “you” and “your” in the engagement letter encompassing Airtours. Furthermore, Lady Justice Gloster considered that Airtours had a right to require PwC to provide services to the Banks and that their obligations were greater than simply paying PwC. On Lady Justice Gloster’s analysis there was reciprocal performance. Lady Justice Gloster concluded that the Upper Tribunal had come to the wrong decision as a matter of law but she would not have been willing to set aside the decision simply based on the grounds that it exceeded its appellate jurisdiction. Moreover, the Banks’ argument regarding apportionment of the VAT was rejected.

However, Lord Justice Vos and Lord Justice Moore-Bick came to a different view and concluded that the appeal ought to be dismissed. Lord Justice Vos reiterated that the correct test was to ask whether something was “…being done for him [the taxable person] for which, in the course of furtherance of a business carried on by him, he has had to pay a consideration which has attracted value added tax”(Lord Hope at p 421H in Redrow). Lord Justice Vos concluded that the contract provided for the services of PwC to be supplied to the Banks and that Airtours’ “need” for the review for its own purposes could not override the contract. Consequently, Lord Justice Vos considered that the First-tier Tribunal had fallen into legal error.

Lord Justice Moore-Bick also believed that the First-tier Tribunal had made a legal error. He felt that the right approach was to read the letter of engagement as a whole and it was evident from this that there was a contract under which PwC had an obligation to the Banks to provide services and Airtours were just to pay.

It followed that Airtours’ appeal was dismissed.

References in square brackets are to paragraphs in the judgment. The full judgment can be foundhere.

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