Praesto Consulting – Court of Appeal of England and Wales finds that a company was entitled to input tax credits for VAT on legal-fee invoices addressed only to its executive

A key employee (Mr Ranson) of an IT consulting firm (“CSP”) left along with three other employees to set up a competing firm (“Praesto”). They were sued by CSP for breach of fiduciary duty but for tactical reasons, Praesto itself was not sued. The law firm acting for Mr Ranson (“Sintons”) addressed eight invoices to him alone, which were paid by Praesto, and Sintons declined a request to address its invoices to Praesto.

The availability to Praesto of an input tax credit for the VAT included in the Sintons invoices turned on a VAT provision providing such a credit for “VAT on the supply to him [the taxable person] of any goods or services being … goods or services used or to be used for the purpose of any business carried on or to be carried on by him.” In finding that Praesto was entitled to such ITCs, Hamblen, LJ stated.

CSP was seeking to put Praesto out of business as its competitor. …

The FTT [below] was satisfied and found that the litigation was effectively being brought against Mr Ranson and Praesto, even though Praesto had not been joined to the proceedings. That reflected the economic reality. It was also borne out by CSP's stated intention to join Praesto if and when Mr Ranson's liability for breach of fiduciary duty was established… .

Neal Armstrong. Summary of Praesto Consulting UK Ltd v HM Revenue and Customs [2019] EWCA Civ 353 under ETA s. 169(1).