Purpose of guarantee

The taxpayer was a Delaware business incorporated in California. In September 2000 it acted as guarantor of rent on behalf of one of its spin-off companies AT for premises in London.

AT ceased to trade in September 2001 before it had occupied the premises. SRI paid the landlord £1.5 million plus VAT of £262 500 to be released from its obligations as guarantor under the lease. The company then applied unsuccessfully to HMRC for a VAT refund.

The First-tier Tribunal dismissed the taxpayer’s appeal agreeing with HMRC that SRI had not carried on any business in the UK.

The company appealed to the Upper Tribunal (Tax and Chancery) Chamber which said the First-tier Tribunal had erred in law. The payment by SRI to obtain release from its liability as guarantor had been incurred for the purposes...