Court of Appeal allows appeal against HMRC, finding a contractual relationship and a direct link between legal services supplied and the company’s taxable activities


Re: Praesto Consulting UK Ltd v HMRC [2019] EWCA Civ 353

This appeal concerned whether, on the facts as found, a company which pays the legal fees relating to the defence of civil proceedings brought against its sole director is entitled to credit for VAT input tax charged in relation to those fees.

For this, the Court had to consider whether the First Tier Tribunal erred in law in concluding that the invoices related to services supplied by the law firm, Sintons, to the claimant company, Praesto; and whether it erred in concluding that the services supplied had a direct and immediate link to Praesto’s taxable activities.

The Court of Appeal considered that the findings made by the FTT clearly establish a contractual relationship between Sintons and Praesto. Therefore, Sintons was being instructed by and acting on behalf of both Mr Ranson and Praesto, and so both were entitled to Sintons’ services and both would be jointly and severally liable for Sintons’ fees.

The Court considered that whether or not there was a direct and immediate link between the services supplied by Sintons and Praesto’s taxable activities was a fact sensitive question. It held (the Master of the Rolls dissenting) that the FTT had applied the right legal test in having regard to “all the circumstances surrounding the transactions at issue”, looking for an objective link and finding that “objectively the reason Praesto obtained Sintons’ services was to limit any liability arising from its taxable activities”. As such the Court concluded that it was open to the FTT to find there was a direct and immediate link.

Therefore the Court of Appeal allowed the appeal, finding that the decision turned on the findings of fact made by the FTT in this specific case.

Eleni Mitrophanous was involved in this case.