Future of VAT avoidance schemes in jeopardy.

Customs & Excise has won what it believes is a precedent-setting tribunal which it says will block most VAT avoidance schemes as a result, writes Gavin Hinks.

The decision, against Halifax, the former building society, related to £7m of VAT paid on the building of call centres, which it undertook by setting up intermediary companies with separate VAT registrations.

The companies would have been able to claim back very much more VAT than if Halifax had directly contracted builders.

However, Customs believes the decision from the London tribunal centre, has set a precedent and will rule out many tax strategies in the future if they are designed ‘purely for the avoidance of VAT’.

Peter Jenkins, head of indirect taxes at Ernst & Young, who advised on the original transactions for Halifax, said: ‘The journey has only started, it hasn’t finished and this is the first of many skirmishes along the way. It will undoubtedly go to the higher courts.’

But he predicted that though the ruling may indeed set a precedent it could not rule out all VAT avoidance strategies and would in time be ‘whittled down’.

A Halifax spokesman this week said the bank was ‘surprised and disappointed’ at the outcome, but it was still considering whether it would make an appeal at the High Court.

Customs’ website is at www.hmce.gov.uk.

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