The issue was whether the appellant, in its role as a professional trustee, was entitled to input tax credit in respect of professional advice obtained to enable it to act as the trustee of a pension fund.

The appellant provided professional advice to pension fund trustees as well as acting as a pension fund trustee itself and in both capacities it incurred VAT in the course of obtaining advice from professionals, such as solicitors and actuaries. There was no dispute that when the appellant obtained advice in order to assist other pension fund trustees it became entitled to deduct input tax, to be set against the output tax charged to those trustees. However, the commissioners refused the appellant's claim for input tax in the sum of £76,783 on supplies received in its role as trustee.

The appellant submitted that it should be allowed to recover VAT in accordance with the ordinary principles of VAT law. Professional services were supplied to it in the course of its business as a professional trustee and it should be entitled to deduct input tax on the cost components of its services. In the appellant's view, the fact that it was reimbursed from the trust fund did not alter that analysis. The appellant contended that the professional services received were attributable to its taxable supplies, these being the supplies it made and for which it charged fees, when it acted as trustee of the fund under its appointment as statutory independent trustee. The appellant, at all material times, had been registered for VAT and had accounted for output tax on the charges it made to the fund when acting as independent trustee.

The commissioners submitted that, for VAT purposes, the registered business of the appellant could not be equated with its trustee function and, in its role as trustee as opposed to adviser to trusts, it was not entitled to deduct input tax in respect of expenses incurred in the fulfilment of that role unless the expenditure was directly linked to supplies made by the trustees on behalf of the specific fund.

Alternatively, the commissioners argued that if the appellant's activities as trustee and adviser to trusts could not be separated, then its supplies relating to operation of the funds would be exempt because the operation of the trusts and the distribution of their income to beneficiaries was not a taxable supply but only the passive exploitation of the funds' investment.

The tribunal decided allowed the company's appeal.

1. The appellant correctly accounted for output tax on the services it provided when acting as trustee as well as when acting as adviser. The commissioners' argument that there could not be a supply because of the fiduciary nature of the trustee function was unrealistic. The activity was carried on for a consideration and with a view to profit.
2. The appellant's activities as adviser and trustee were not separate and distinct. It provided a composite service and an integral element of that service was the buying-in of services from third party professionals and the charging-on of the cost of those services to the fund.
3. There was no merit in the commissioners' contention that because the fund was not a legal person the appellant must have supplied the service to itself. Whilst it was clear that a supply had to be to another person, VATA 1994, s. 4(1) and art. 24 of Directive 2006/112 placed the emphasis on the nature of the supply, rather than the identity of the recipient.
4. The appellant made taxable supplies to the beneficiaries of the fund by managing the fund for their benefit and it did so for a consideration from the fund. The fact that the fund did not trade in the commercial sense was irrelevant.
5. In accordance with s. 25(6) of the Pensions Act 1995, the supply of professional services was made to the appellant in its capacity as a taxable person.
6. The appellant made supplies taxable at the standard rate and, therefore, the commissioners' alternative argument was rejected.
7. The appellant was entitled to deduct, as input tax, VAT charged on the fees paid to professional persons in its capacity as trustee.

No. 20,532