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URL: http://www.bailii.org/uk/cases/UKHL/1999/4.html
Cite as: [1999] UKHL 4, [1999] Crim LR 240, [1999] 2 Cr App R (S) 176, [1999] 2 WLR 1100, [1999] WLR 408, [1999] 2 All ER 13, [1999] 1 WLR 408, [2000] QB 198, [1999] STC 161, [1999] 2 Cr App R (S) 185, [1999] 2 Cr App R 36

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Commissioners of Customs and Excise v. Redrow Group Plc [1999] UKHL 4; [1999] 2 All ER 13; [1999] 1 WLR 408 (11th February, 1999)

HOUSE OF LORDS

  Lord Steyn   Lord Goff of Chieveley   Lord Hope of Craighead
  Lord Hutton   Lord Millett

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

COMMISSIONERS OF CUSTOMS AND EXCISE
(RESPONDENTS)

v.

REDROW GROUP PLC.
(APPELLANTS)

ON 11 FEBRUARY 1999

LORD STEYN

My Lords,

       For the reasons contained in the speeches of my noble and learned friends, Lord Hope of Craighead and Lord Millett, which I have had the privilege of reading in draft, I would allow the appeal.

LORD GOFF OF CHIEVELEY

My Lords,

       I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Hope of Craighead and Lord Millett. For the reasons they give I too would allow the appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

       Redrow Group Plc. ("Redrow") is a member of a group of companies almost all of which are involved in constructing new houses for sale in the private sector. The group has the benefit of group registration for the purposes of value added tax, and Redrow is the representative member of the group. This appeal relates to a sales incentive scheme which Redrow operates in order to expedite sales of its homes to prospective purchasers, most of whom have to sell their existing homes before they can proceed to purchase a new home. It is also intended to provide the prospective purchasers with a financial incentive to purchase their homes from Redrow.

       The scheme assumes that the services of an estate agent will be needed if a buyer for the existing home is to be found. In order to expedite the sale Redrow selects the estate agent, instructs the agent to value the existing home and handle the sale and monitors progress in the marketing of the property to maintain pressure on the agent to achieve a sale. As an incentive to the prospective purchaser, Redrow enters into an agreement with both the agent and the prospective purchaser that it will pay the estate agent's fee plus Value Added Tax if the prospective purchaser completes on the purchase of a home from Redrow. The instructions to the agent cannot be changed without Redrow's agreement. But the agreement provides that Redrow is not liable to pay the agent's fee if the prospective purchaser does not proceed with the purchase of a home from Redrow. The agent is advised by Redrow on being recruited into the scheme to enter into a separate agreement in the normal terms with the prospective purchaser, to provide cover in the event that Redrow is not liable to pay the fee because the prospective purchaser has decided to go elsewhere to buy a new home.

       The question is whether Redrow is entitled to credit as a deduction from the output tax due from it for the amount of the value added tax which the estate agent is obliged to charge on the supply of its services. Section 14(2) of the Value Added Tax Act 1983 sets out the rule which enables a taxable person to obtain credit for so much of his input tax as is allowable under section 15 of the Act and then to deduct that amount from any output tax that is due from him. The issue in this case is whether the tax which Redrow pays to the estate agent falls within the definition of "input tax" in section 14(3).

       That subsection provides, so far as relevant to the facts of this case, that "input tax," in relation to a taxable person, means the tax "on the supply to him" of any goods or services "used or to be used for the purpose of any business carried on or to be carried on by him." In Belgium v. Ghent Coal Terminal N.V. (Case C-37/95) [1998] S.T.C. 260, 268, para. 54 the Advocate General said that the condition which determines whether the right to deduct value added tax arises is that the goods acquired and the services received are acquired and received in connection with the business activity of the taxable person, that is to say for the purpose of being incorporated in its economic activity. Redrow has the benefit of a finding of fact by the value added tax tribunal which is in its favour on this point. The tribunal held that the fees paid to the estate agents were part of Redrow's cost components in the sale of its homes. On the facts it is beyond dispute that this expenditure was in connection with Redrow's business activities. The critical question is whether the expenditure was incurred in the supply by the estate agents of services to Redrow.

       Section 3(2)(b) of the Act provides that "anything which is not a supply of goods but is done for a consideration" is a supply of services. Article 6(1) of the E.C. Sixth Council Directive (Directive 77/388) contains a definition in terms which are no less wide. It states that "supply of services" shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5. There is no doubt that the work done by the estate agents was the supply of services on which they were obliged by section 2(1) of the Act to charge value added tax. But were they supplying services to Redrow, for which Redrow were entitled to deduct the tax which it paid as input tax? Or were they, as the Commissioners contend, supplying services only to the prospective purchasers?

       Dr. Lasok Q.C. for the Commissioners said that it was not enough to entitle Redrow to deduct the tax as input tax that it had had to pay for the services. Nor was it enough that it had benefited from them. He maintained that the rights and obligations which were created by the contractual relationship did not determine the relationship between the parties for the purposes of Value Added Tax. That relationship had to be determined by looking at the objective character of the transaction. The question was, where did the goods or services actually go? In this case the services went to the prospective purchasers. It was their houses which were being marketed and sold by the estate agents. It was they, and not Redrow, who had consumed these services. The scheme of the tax was that the burden of it fell on the final consumer of the goods or services. The tax which the final consumer had to pay was the product of links in the chain as each transaction was drawn into the economic activity which resulted in the ultimate supply. On the facts of this case it was unrealistic to say that the services of the estate agents were being passed through Redrow as a step in the chain of transactions which led to the prospective purchasers as the final consumer of their services. This was because those same services were being supplied to the prospective purchasers at the same time as they were, on Redrow's argument, being supplied to Redrow. The direct and immediate link was between the estate agents and the prospective purchasers. The aim of Redrow, which was to facilitate the sale of their homes by instructing and paying for the services of the estate agents, was irrelevant.

       The decision of the European Court of Justice in B.L.P. Group Plc. v. Customs and Excise Commissioners (Case C-4/94) [1996] 1 WLR 174 was said to support this argument. In that case, in para. 19 of the judgment at pp. 198-199, the court held that "the goods or services in question must have a direct and immediate link with the taxable transactions, and . . . the ultimate aim pursued by the taxable person is irrelevant in this respect." The Court of Appeal were persuaded by that judgment, against their initial impression on reading the facts in this case, that the services which the estate agents were supplying were the services which an estate agent ordinarily supplies when a house is to be sold and that they were being supplied to the prospective purchasers and not to Redrow. As Peter Gibson L.J. [1997] S.T.C. 1053, 1060 put it, objectively these services could be seen to be directly attributable to the sale by the prospective purchaser of his own house and not the sale of a new house by Redrow, even though the estate agent's supply benefited Redrow by facilitating Redrow's sale.

       But the B.L.P. case was concerned with a point which seems to me to be entirely different from that which arises here. In that case services had been supplied to B.L.P in connection with the sale of shares, which was an exempt supply. The argument that they had been used for the purposes of B.L.P.'s taxable transactions had to look beyond the direct and immediate link with the exempt supply to the ultimate aim of the sale, which was to raise funds to pay off debts. In the present case there is no problem of allocation of that kind. It is agreed that all the supplies which Redrow makes in the course or furtherance of its business are taxable supplies. So it is not necessary to examine each of the transactions on which it claims to be entitled to deduct input tax in order to determine whether there is a direct and immediate link with a supply which is taxable. That exercise only becomes necessary where the evidence shows that the taxable person makes supplies some of which are exempt supplies or is carrying on an activity other than the making of taxable supplies: see regulation 30(2)(c) of the Value Added Tax (General) Regulations 1985. The question then is whether there is a direct and immediate link with an exempt supply or with a supply which is not taxable. Where--as in this case--all the supplies which the taxable person makes in the course or furtherance of its business are taxable supplies, the only question which has to be addressed is whether the supplies on which it seeks to deduct input tax have been used or are to be used for the purposes of the business. The relevant test is that laid down in the Ghent Coal Terminal case. Was the supply received in connection with the business activities of the taxable person, for the purpose of being incorporated within its economic activities?

       The tribunal held that the services which were supplied by the estate agents were supplied both to Redrow and to the prospective purchasers. Potts J. [1996] S.T.C. 365, 371 said that this was a decision which the tribunal were entitled to reach. The approach which the tribunal took was ask itself whether and to what extent Redrow received the services supplied by the estate agents. The primary facts seem to me to support the conclusion which it reached on this issue. Clearly the estate agents were supplying services to the prospective purchasers, as they were engaged in the marketing and sale of the existing homes which belonged to the prospective purchasers and not to Redrow. But Redrow was prepared to undertake to pay for these services in order to facilitate the sale of its homes to the prospective purchasers. The estate agents received their instructions from Redrow and, so long as the prospective purchasers completed with Redrow, it was Redrow who paid for the services which were supplied. I do not see how the transactions between Redrow and the estate agents can be described other than as the supply of services for a consideration to Redrow. The agents were doing what Redrow instructed them to do, for which they charged a fee which was paid by Redrow.

       The word "services" is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of a business carried on by him which is done for a consideration. The name or description which one might apply to the service is immaterial, because the concept does not call for that kind of analysis. The service is that which is done in return for the consideration. As one moves down the chain of supply, each taxable person receives a service when another taxable person does something for him in the course or furtherance of a business carried on by that other person for which he takes a consideration in return. Questions such as who benefits from the service or who is the consumer of it are not helpful. The answers are likely to differ according to the interest which various people may have in the transaction. The matter has to be looked at from the standpoint of the person who is claiming the deduction by way of input tax. Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted Value Added Tax? The fact that someone else--in this case, the prospective purchaser--also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction.

       For these reasons, and for the reasons given by my noble and learned friend Lord Millett, whose speech I have had the benefit of reading in draft, I would allow the appeal.

LORD HUTTON

My Lords,

       I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Hope of Craighead and Lord Millett. For the reasons they give I too would allow the appeal.

LORD MILLETT

My Lords,

       This is an appeal by the taxpayer Redrow Group Plc. from a decision of the Court of Appeal that it is not entitled to be credited with input tax in respect of the professional services of estate agents. The Court of Appeal held that, in the circumstances of the present case, their services are supplied to the taxpayer's customers and not to the taxpayer itself. In reaching this conclusion the Court of Appeal reversed the decision of Potts J. who had affirmed a finding of a Value Added Tax Tribunal that the services are supplied to both.

       A person carrying on business in the United Kingdom is accountable for Value Added Tax on the taxable supplies of goods and services made by him. This is known as output tax. Against the output tax for which he is accountable, he is credited with the input tax on goods and services supplied to him and which are attributable to his taxable supplies. Value Added Tax borne on goods and services supplied to him and which are attributable to his exempt supplies is input tax but it is not creditable against output tax.
 

       The taxpayer is a house builder. The sale of a newly built house is zero-rated. Accordingly, no Value Added Tax is paid on the sale of the house, but the builder is credited with creditable input tax in respect of materials and services supplied to him for the purpose of his business and which have borne Value Added Tax.

       It is important to appreciate that the present appeal is not concerned with the attribution of input tax, but with the prior question whether the services in respect of which the taxpayer claims to be credited with input tax are supplied to the taxpayer at all. If they are supplied to the taxpayer, it is not disputed that the input tax is attributable to its taxable supplies.

The facts

       The taxpayer is the representative member of a group of companies almost all of which are involved in constructing new houses for sale in the private sector. Most prospective purchasers of a Redrow home have an existing home to sell and cannot proceed with the purchase unless and until they have a buyer for their existing home. To deal with this problem the taxpayer operates a sales incentive scheme. The scheme has two objectives: (i) to expedite the prospective purchaser's own sale; and (ii) to provide the prospective purchaser with a financial incentive to buy a Redrow home. To achieve these objectives the taxpayer chooses an agent (and takes care to choose the more effective agents); instructs him to value the prospective purchaser's existing home and to handle the sale; and monitors progress in the marketing of the property and, through frequent contact, maintains pressure on the agent to achieve a sale. It also agrees to pay the agent's fee on the sale of the prospective purchaser's home, though only if the prospective purchaser completes the purchase of a Redrow home.

       The taxpayer considers that the scheme has been highly successful in committing prospective purchasers to their purchase of a Redrow home. The mechanics of the scheme are as follows:

       (1) the sales staff at each Redrow development site recruit one or more local agents into the scheme;

       (2) if a prospective purchaser is interested in taking advantage of the scheme, the taxpayer instructs an agent of its choice to value the prospective purchaser's home;

       (3) an asking price for the house is agreed. This takes into account the agent's valuation and the expectations of the prospective purchaser. Unless the taxpayer considers the asking price to be a realistic one it will not proceed with the transaction. If the taxpayer decides to proceed it instructs the agent to put the house on the market;

       (4) while the prospective purchaser's house is on the market, the taxpayer's sales staff keep in close contact with the agent to ensure that maximum effort is being made to sell it;

       (5) the prospective purchaser must obtain the taxpayer's consent to any change in the terms of the sale of his house. He cannot, for example, unilaterally instruct a second agent to market his house jointly with the agent selected by the taxpayer, because this would alter the rate of commission payable to the scheme agent from the sole agency rate agreed with the taxpayer to the higher joint agency rate;

       (6) when the prospective purchaser has agreed to sell his own home subject to contract, he reserves a Redrow home (also subject to contract);

       (7) the subsequent exchanges of contract and completions between (i) the prospective purchaser and his purchaser and (ii) the taxpayer and the prospective purchaser are co-ordinated in the usual way;

       (8) upon exchange of contracts for the sale of the prospective purchaser's own home and his purchase of a Redrow home, the agent sends an invoice to the taxpayer for the commission payable upon completion;

       (9) once legal completion of the sale of the Redrow home has taken place, the taxpayer pays the estate agent's fees in full;

       (10) if the prospective purchaser finds a buyer through the scheme, but does not complete the purchase of a Redrow home, the taxpayer has no liability to pay the estate agent. To cover this eventuality, the taxpayer advises the agent to enter into a separate agreement for his fees with the prospective purchaser.

       The taxpayer deducted input tax in respect of the agents' fees. The Commissioners disputed the deduction. They considered that the services supplied by the agents are supplied to the individual purchasers and not to the taxpayer and raised an assessment accordingly.

       The Value Added Tax Tribunal allowed the taxpayer's appeal. The Tribunal concluded that on the evidence the agents' services are supplied to both the taxpayer and the individual purchasers. The Tribunal added, however, that not every agent instructed by the taxpayer makes a supply of services to it for Value Added Tax purposes. In any particular case it is necessary to await events and see to whom the agent has made the supply; it is only if the taxpayer becomes liable to pay the agent's fees that the agent's services are supplied to it. It can then proceed to recover the tax on those fees as creditable input tax.

       Potts J. dismissed the Commissioners' appeal. He held that there was abundant evidence on which the Tribunal was entitled to find that the agents' services are supplied to the taxpayer as well as to the individual purchasers. The Court of Appeal reversed his decision. They held that, in determining whether the tax borne on any services is creditable input tax, the services in question must have a direct and immediate link with the taxpayer's taxable transactions. They derived this test from the decision of the European Court of Justice in B.L.P. Group Plc. v. Customs and Excise Commissioners [1996] 1 WLR 174 (the "B.L.P. case"). They held that, viewed objectively, the estate agent's services are directly and immediately linked to the sale of the individual purchaser's home and not to the concurrent sale of a Redrow home. Accordingly the Court ruled that, as a matter of law, the services are supplied to the individual purchaser alone and not to the taxpayer.

The structure of the tax

       My Lords, Value Added Tax, if I may be pardoned for adapting a famous observation of Lord Macnaghten, is a tax on added value. The basic principle of the tax is that is intended to be a tax on consumption and borne by the final consumer. But it is not chargeable only when a supply is made to the final consumer. It is chargeable on the value added by every prior taxable transaction in the chain of transactions which leads to him. Each of the parties to such a transaction collects and accounts to the authorities for the output tax in respect of supplies made by him, and deducts the input tax in respect of the goods and services supplied to him. The difference between the cost of the supplies in respect of which input tax is credited and the price of the services on which output tax is charged reflects the value added by the taxpayer. The final consumer makes no supplies himself. He collects no output tax and so has nothing against which the input tax which he has borne can be credited.

       The key concept is that of supply. Article 2(1) of the Sixth Directive of 17 May 1977 (E.E.C. Council Directive 77/388) ("the Directive") imposes Value Added Tax upon "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such." Article 4(1) defines "taxable person" as any person who independently carries out an economic activity. Article 6(1) defines "supply of services" as any transaction which does not constitute a supply of goods.

       The Directive is given effect in the United Kingdom by the Value Added Tax Act 1983 ("the Act"). Section 1 of the Act charges tax on the supply of goods or services in the United Kingdom. Section 2 confines the scope of the tax to any supply (other than an exempt supply) of goods or services which is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him. Section 3(2)(a) excludes from the meaning of the word "supply" anything done otherwise than for a consideration. Section 3(2)(b) is of critical importance in the present case. Reflecting Article 6(1) of the Directive, it provides that anything (including the granting, assignment or surrender of any right) which is not a supply of goods but is done for a consideration is a supply of services.

       Credit for input tax is governed by Sections 14 and 15 of the Act. Section 14(2) entitles the taxpayer to credit for so much of his input tax as is allowable under Section 15. Section 14(3)(a) defines the input tax of a taxable person as:

Thus tax on supplies made "to" a taxable person and used "for the purpose of his business" (Section 14(3)(a)) is input tax. Whether the taxpayer is entitled to a credit for input tax, however, depends on Section 15. So far as material this restricts the amount of input tax for which a taxable person is entitled to credit at the end of any period to so much of the input tax for the period as is allowable under regulations as being attributable to taxable supplies.

       The corresponding provisions of the Directive are contained in Articles 17 to 20. The requirement in Section 14(3)(a) of the Act that the supply must be made to the person claiming the credit is contained in Article 17(2)(a). The restriction of creditable input tax in Section 15 to input tax which is attributable to taxable supplies gives effect to the opening words of Article 17(2) which restrict it to tax in respect of supplies used for the purposes of taxable transactions. Article 17 does not make separate reference to the supply being used for the purposes of any business, but this is implicit in the requirement that is used for the purposes of taxable transactions.

       Regulation 30 of the Value Added Tax General Regulations 1985/886 as substituted contains detailed rules for the attribution of input tax to taxable supplies. In brief, input tax on goods or services which are used or to be used exclusively in making taxable supplies is to be attributed to those supplies; tax on goods or services which are used or to be used exclusively in making exempt supplies is not to be attributed to taxable supplies; and the appropriate proportion of the tax on goods or services which are used or to be used in making both taxable and exempt supplies is to be attributed to taxable supplies. These rules give effect to the requirement in Article 17(2) that the taxable person is entitled to deduct input tax "in so far as the goods or services are used for the purposes of his taxable transactions"; and to the provision in Article 17(5) that:

       These provisions entitle a taxpayer who makes both taxable and exempt supplies in the course of his business to obtain a credit for an appropriate proportion of the input tax on his overheads. These are the costs of goods and services which are properly incurred in the course of his business but which cannot be linked with any goods or services supplied by the taxpayer to his customers. Audit and legal fees and the cost of the office carpet are obvious examples.

       The Court of Justice has repeatedly emphasised the distinction between the acquisition of goods or services by a taxable person and the taxable use to which they are to be put. The former is the more fundamental requirement. It is the acquisition of goods or services by a taxable person acting as such that gives rise to the application of the Value Added Tax system and conse quently of the deduction mechanism. The use to which the goods or services are put or intended to be put merely determines the extent of the initial deduction to which the taxable person is entitled under Article 17: see Lennartz v. Finanzamt Műnchen III (Case C-97/90) [1995] S.T.C. 514 at 544, para. 15; Belgium v. Ghent Coal Terminal N.V. (Case C-37/95) [1998] S.T.C. 260 at 272, para. 18. The dichotomy is clearly brought out in the English legislation.

The B.L.P. case

       Paragraph 19 of the judgment of the Court of Justice in the B.L.P. case lays it down that, in order to give the right to deduct input tax under Article 17(2) of the Directive, the goods or services referred to in Article 17(5) must "have a direct and immediate link with the taxable transactions."

       In the present case the Court of Appeal treated this requirement as determinative, not merely of the question whether the agents' services are attributable to the taxpayer's taxable supplies, but also of the identity of the person to whom the supplies are made. They pointed out that two transactions are involved every time that the taxpayer becomes liable to pay the agent's fees. One is the sale of his own home by the individual purchaser, and the other is the sale of the new Redrow home by the taxpayer. It was, they said, self-evident that the services which the agent supplies have a "direct and immediate link" with the former transaction but not with the latter.
 

       My Lords, I am satisfied that this is a misreading of the decision of the Court of Justice in the B.L.P. case. In that case the taxpayer raised money by selling its shareholding in another company. It claimed to deduct the tax included in invoices submitted by bankers, solicitors and accountants for services rendered to it in connection with the sale. The claim was refused on the ground, which was not disputed, that the sale of the shares was an exempt supply. The taxpayer claimed that the shares were sold in order to raise money to pay off debts which it had incurred in the course of its business, and that its business involved making both taxable and exempt supplies. It argued that, in these circumstances, the costs of professional services supplied to it in connection with the sale should be treated in the same way as overhead costs and an appropriate proportion of the input tax deducted under Article 17(5). This argument was rejected. The services in question were supplied to the taxpayer exclusively in connection with its sale of the shares, an exempt supply, and were exhausted when the shares were sold. It followed that no part of the cost of such services could be attributed to the taxpayer's taxable supplies.

       The case was about attribution, not about the identity of the person to whom the services were supplied. The taxpayer was the only possible recipient of the services; there was no one else. The interpretation placed upon the decision by the Court of Appeal in the present case would seem to lead to the conclusion that the services of the bankers, solicitors and accountants in connection with the sale of the shares were not supplied to anyone. Yet if the sale of the shares had been a taxable supply the input tax in question would plainly have been deductible. It would also seem to lead to a denial of the right to deduct input tax in respect of overhead costs, for the services in respect of which such costs are incurred cannot be linked, whether directly and immediately or not, with any particular supplies made by the taxable person. Yet in a later part of the judgment the Court of Justice confirmed that overhead costs "for the taxable person's taxable transactions" are deductible (see paragraphs 25 and 27).

       Paragraph 19 of the judgment is concerned with the proper interpretation of Article 17(5), to which it makes express reference. This, it will be remembered, makes provision for the case where goods or services are used for both taxable and exempt supplies and cannot therefore be linked exclusively with either. In rejecting the taxpayer's claim to deduction, therefore, the Court of Justice cannot have intended to deny the right to deduct tax in respect of goods or services which cannot be "directly and immediately" linked with a particular taxable supply made by the taxpayer. Paragraph 19 of the judgment must accordingly be read as denying the right to deduct tax in respect of goods or services which are exclusively linked with an exempt output. So understood, it has no bearing on the present case.

Identifying the recipient of the services

       The Commissioners begin by describing the services in question as the ordinary services of an estate agent instructed to market and sell his client's house. They then ask: to whom were those services supplied? Inevitably they answer: to the householder. They concede that the taxpayer derived a benefit from the services supplied by the agent and was accordingly prepared to pay for them; but they insist that this is irrelevant. The question is: to whom did the agent supply his services, not who derived a benefit from them?

       But this approach begs the question to be decided. The way in which the Commissioners describe the services dictates the answer. But it is equally possible to begin with the services which the taxpayer instructed the agents to perform. This would lead to a different definition of the services in question. They would not be the ordinary services of an agent instructed to market and sell his client's house, but the services of an agent instructed to market and sell a third party's house. The fact is that the nature of the services and the identity of the person to whom they are supplied cannot be determined independently of each other, for each defines the other. Where, then, should one begin?

       The solution lies in two features of the tax to which I have already referred. The first is that anything done for a consideration which is not a supply of goods constitutes a supply of services. This makes it unnecessary to define the services in question. The second is that unless the services are rendered for a consideration they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless the taxpayer has incurred a liability to pay it as part of the consideration payable by him for a supply of goods or services.

       In my opinion, these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction. Once the taxpayer has identified the payment the question to be asked is: did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is itself a supply of services.

       In the present case the taxpayer did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees it obtained a contractual right to have the householders' homes valued and marketed, to monitor the agents' performance and maintain pressure for a quick sale, and to override any alteration in the agents' instructions which the householders might be minded to give. Everything which the agents did was done at the taxpayer's request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to the taxpayer.

       The Tribunal had the second of the two factors to which I have referred in mind when it said that it was necessary to await events and see to whom the agent makes the supply; it is only if the taxpayer becomes liable to pay the agent's fees that his services are supplied to it. The Commissioners criticised this reasoning, submitting that the destination of a supply must be ascertainable when it is made; it cannot be held in suspense to await subsequent events. But this assumes that the services rendered to the householder and those rendered to the taxpayer are the same. They are not. The services rendered to the householder are the ordinary services of an estate agent in the valuation and marketing of his house. If the householder sells his home but fails to complete the purchase of a Redrow home, he may become liable for the agent's fees. He is not, however, entitled to deduct input tax in respect of the fees because, although the services in question were supplied to him, they were not used or to be used for the purpose of any business carried on or to be carried on by him.

       The services obtained by the taxpayer are different. They consist of the right to have the householder's home valued and marketed in accordance with the taxpayer's instructions. Unless the householder sells his home and completes the purchase of a Redrow home, however, the taxpayer is not liable for the agent's fees and pays no input tax, so there is nothing in respect of which a claim to deduction may be made. What must await events is not the identity of the party to whom the services are rendered, for different services are rendered to each; but which of the parties is liable to pay for the services rendered to him and so bear the burden of the tax in respect of which a claim to deduction may arise.

Conclusion

       It is sufficient that the taxpayer obtained something of value in return for the payment of the agents' fees in those cases where it became liable to pay them, and that what it obtained was obtained for the purposes of the taxpayer's business. Both those conditions are satisfied in the present case. It is not necessary that there should be "a direct and immediate link" between the services supplied by the agent and the sale of a particular Redrow home, although if it were necessary then this condition too would be satisfied on the facts of the present case. From the taxpayer's standpoint, which is what matters, the agent's fees incurred in the sale of a prospective purchaser's own home are not part of the taxpayer's general overhead costs but a necessary cost of and exclusively attributable to the sale of a Redrow home to that same purchaser. If the sale of the Redrow home were an exempt supply and not merely zero- rated, the agent's fees would not be deductible for the reasons given by the Court of Justice in the B.L.P. case.

       I would allow the appeal and affirm the decision of the Value Added Tax Tribunal.


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