Tribunal sides with HMRC on VAT liability for supply of services
The Upper Tribunal recently issued its decision in JP Morgan Chase Bank N.A.’s (CBNA) appeal regarding the VAT liability of ‘business delivery and support services’ bought in from overseas and supplied to JP Morgan Securities plc (SPLC), a fellow UK VAT group member.
CBNA contended that there were separate supplies of ‘business delivery services’ and ‘support services’, split between the various business divisions, which should be considered independently to determine the VAT liability. HMRC disputed this, arguing that there was a single composite supply that was subject to VAT.
Although the services were supplied within the same VAT group, the need to apply the reverse charge (due to specific anti-avoidance rules) made the question of which VAT liability to apply particularly important.
The First-tier Tribunal found that all the services bought in from overseas by CBNA and supplied to SPLC constituted a single, taxable supply and should have been subject to VAT, necessitating the application of the reverse charge.
CBNA argued that the services were tailored to the distinct operational needs of SPLC’s seven business areas and should therefore be treated as separate supplies. It also argued that some of these services would qualify for VAT exemption on the basis that they related to transactions in securities or payment processing.
HMRC maintained that the bundle of services was being supplied pursuant to a single contract and the services were so heavily interlinked that it would have been artificial to separate them. The services accordingly were subject to VAT.
The tribunal agreed with HMRC, stating that the services were so closely linked that they formed a “single, indivisible economic supply of support function services”, which included both the business delivery and support services.
With respect to the exemption argument, the FTT found that whilst the services supplied by CBNA were important and supportive of the exempt transactions carried out by SPLC, this was not sufficient to qualify for exemption. The FTT’s decision emphasises that exemption should be construed narrowly and is only available to services which result in a change in the legal or financial position (as was found in Target Group Ltd v HMRC in 2019).
Beyond the technical VAT issues analysed, the decision underlines the importance of contractual documentation when considering the VAT liability of services provided. Businesses should regularly review contracts, including those for intra-group services, so that they reflect the commercial reality of the services provided.