Court of Appeal to consider validity of Jersey company used by loan broker to avoid VAT on advertising

13th March 2017 Blog

Author: David Bowden, Sole Practitioner, David Bowden Law

Ocean Finance (a UK loan broking company) set up a Jersey company (Alabaster) to provide advertising services to Ocean Finance. There was a service agreement between the 2 companies. The arrangement was set up in 1997 to reduce Ocean Finance’s VAT bill.  Ocean Finance was exempt from VAT for its loan broking business but did have to pay VAT on external advertising costs. It wanted to avoid VAT leakage by using a Jersey company. The First Tier Tribunal in 2010 determined the facts and ruled that the arrangements with Alabaster were not abusive with the result that Ocean Finance’s scheme to reduce its VAT bill worked. On appeal to the Upper Tribunal a number of questions were referred to the Court of Justice of the European Union which handed down its ruling in 2013. The case went back to the Upper Tribunal which still found in Ocean Finance’s favour. The CJEU said it was for UK courts to decide if Ocean Finance’s contract with Alabaster could be overridden or not. By then in another VAT appeal (which had also gone to the CJEU) the Supreme Court in another VAT avoidance scheme operated by a motor breakdown insurer had ruled in HMRC’s favour. Buoyed by this success, HMRC sought to appeal the Upper Tribunal ruling to the Court of Appeal. This appeal will now be heard over 2 days starting on 28 or 29 March 2017. It will have to decide if Ocean Finance’s VAT reduction scheme for its advertising costs using Alabaster is ‘abusive’ or not.