Acceptable arrangements

N trading as Ocean Finance provided services as a licensed credit broker in the UK. It was not registered for VAT because it made exempt supplies only and as a result incurred irrecoverable VAT on advertising and other supplies.

So that the business could obtain advertising services VAT-free N set up a company (Alabaster) in Jersey. He transferred the loan broking business to Alabaster which outsourced the processing operations back to the UK. It then engaged an advertising agency in Jersey.

The purported effect of the move was that the loan brokerage services supplied by Ocean Finance were made in the UK – where the recipients belonged – and therefore remained exempt.

The advertising services were treated as not subject to UK VAT because the supplier of the services and Alabaster belonged in Jersey.

HMRC said N supplied the loan broking services and received...