Telent plc

The issue was whether services of a firm of solicitors in connection with a corporate restructuring exercise were supplied to the appellant company as well as to the solicitors' own clients. Since the issue concerned the professional conduct of the solicitors, the tribunal directed that they should be admitted as a third party to the appeal.

The appellant was the representative member of a VAT group, previously known as the Marconi Group, and the third-party solicitors were Clifford Chance LLP. The events that gave rise to the dispute involved the refinancing of the appellant and the worldwide restructuring of the appellant's corporate group, known as Project Telescope. Since the group was one of the largest corporations listed in the UK, the transactions were multi-million pound financial arrangements involving some of the major banks, solicitors and accountants operating in the London market. The key question for the tribunal was the capacity for VAT purposes in which Clifford Chance took part in the events. There was a number of possibilities including: (1) that it was acting for, and supplying services to, the joint co-ordinating banks, as both it and the commissioners contended; (2) that it also supplied services to the appellant; or (3) that it was acting for, and supplying services to, each of the 31 creditor banks. The appellant paid for the legal services provided by Clifford Chance and appealed against the commissioners' refusal to refund, as input tax, the VAT paid on those supplies.

The appellant submitted that the dispute involved a fundamental aspect of the design of VAT. The problem identified was that arising when A made a single undivided taxable supply of services to both B and C where A had a contract with B to provide those services, but C paid A in full. The question was whether the VAT invoice should be issued by A to B or to C, or in duplicate to both, or divided in some other way. In the appellant's opinion, services may be supplied by a taxable person to two other persons at the same time and if one of those recipients provides the consideration, the other recipient may rely for VAT purposes on the third-party consideration and recover the VAT accordingly. Where the supply is made to more than one recipient, and the appropriate conditions are satisfied, the VAT invoice should be issued to the recipient paying the consideration so that it can reclaim the VAT as input tax. In the present case, the appellant contended that, for the purposes of VAT, the actions of Clifford Chance amounted also to supplies to it, the appellant, for the purposes of its business. It drew from C & E Commrs v Redrow Group plc [1999] BVC 96 and C & E Commrs v Plantiflor Ltd [2002] BVC 572 the proposition that, as a matter of law, Clifford Chance could be regarded as making supplies both to its clients and to the appellant, its paymaster.

The evidence of one of the partners of Clifford Chance who was centrally involved in Project Telescope was that the joint co-ordinating banks, and only the joint co-ordinating banks, were the clients of Clifford Chance. In his opinion, the firm's only involvement in the project in the role for which the appellant was paying its fees was in that capacity. In so far as advice was given or made available to others it was on the instructions, or with the express consent of, the joint co-ordinating banks. No advice was given on a ‘solicitor to client’ basis to the appellant or to any other party. Clifford Chance argued that its actions accorded with the code governing the professional conduct of solicitors and that if it had issued VAT invoices to the appellant it would have been in breach of this code.

The tribunal was shown an invoice issued by Clifford Chance, agreed to be a representative sample. It was marked as not being a VAT invoice and contained no VAT registration number. The invoice was addressed to one of the co-ordinating banks and was noted as being payable by the appellant. The tribunal was not told of any other invoices being issued by Clifford Chance and concluded that no VAT invoices had been issued.

The tribunal dismissed the taxpayer's appeal.

1. On the evidence available, and as a matter of the law of contract of England and Wales, it was clear that Clifford Chance was acting only for the joint co-ordinating banks and not for the appellant or any other party. There was no contractual or other legal basis on which Clifford Chance made, or was obliged to make, supplies of any nature to the appellant as part of Project Telescope.
2. Notwithstanding the facts that payment was made by the appellant and that the appellant derived benefits from the supplies made by Clifford Chance, the joint co-ordinating banks were required to meet Clifford Chance's fees. The payment made by the appellant constituted consideration by a third party for services supplied to the joint co-ordinating banks.
3. In so far as Clifford Chance directly or indirectly supplied services to any person other than the co-ordinating banks, it did so as a consequence of its relationship with its clients and not as a result of any separate solicitor-client or contractual relationship.
4. The alternative argument for the appellant that Clifford Chance was acting for the creditor banks either together or on an individual basis was rejected.
5. There was no entitlement for the appellant to deduct input tax in respect of the payments made by it to Clifford Chance.

No. 19,967