The curious case of D Nuttall UK Limited v HMRC [2025] UKFTT 01600 (TC) highlights the importance of having key contracts drafted, or at least reviewed, by legal professionals.
Background
Nuttall supplied freight services – it would load, unload, store and transport goods for its customers.
Since Nuttall did not have a goods vehicle operating licence (“Licence”) during the period in question, it hired trucks from S.C. ROBO International S.R.L (“ROBO”). Nuttall was generally responsible for fuelling, maintaining and repairing those trucks that it used. ROBO did little other than own the trucks, pay insurance and road tax, maintain its Licence and make the trucks available to Nuttall.
Nuttall claimed input VAT it incurred on its purchases of fuel, maintenance and repair services in the UK.
HMRC had disallowed almost £300,000 of input VAT on the basis that the supplies of fuel, maintenance and repair services were not made to Nuttall, but were in fact made to ROBO.
HMRC appear to have been led to this conclusion by a couple of factors:
- The contract between Nuttall and ROBO referred to ROBO providing “transport services”. HMRC interpreted this as meaning the transporting of goods for Nuttall’s customers.
- Since ROBO owned the trucks, any goods incorporated onto the trucks and any fuel deposited in its tanks would become the property of ROBO (and therefore could not be supplied to Nuttall as a matter of property law).
The First-tier Tribunal’s decision
Ultimately, the Tribunal rejected HMRC’s arguments.
On the contract wording point, the Tribunal held that the actual service supplied by ROBO was that of “making trucks available” to Nuttall. Wording is important (and the Tribunal agreed with HMRC’s analysis of the literal meaning of the contract), but the economic reality is also important in interpreting the contract. By way of analogy, if my factory sells a pallet of chocolates to a corner shop, I can’t zero rate my pallet of chocolates on the basis that the contract of sale referred to a pallet of “bread”.
On the point of ownership, it is long settled EU caselaw that a supply of goods includes “any transfer of tangible property by one party which empowers the other party actually to dispose of it as if he were its owner.” Whilst this will often also entail a transfer of ownership, it is a subtly different definition. The caselaw derives from fact patterns along similar lines to Nuttall’s (i.e. fuel card arrangements, in Auto Lease Holland – Case C-185/01; Vega – Case C-235/18).
Our comments
HMRC appear to have been led astray due to the contract between Nuttall and ROBO being drafted by the owner of ROBO (who had only limited English language literacy and no relevant legal experience). Poorly drafted agreements can, and often do, lead to avoidable disputes with HMRC, since the written agreements will often be HMRC’s first port of call when trying to understand what your business does.
It’s always worth having your key agreements looked at by an expert to ensure they reflect the parties’ intentions and the economic reality.
Overall, this was a rather odd case to make its way to the Tribunal. We think some time and taxpayer cost could have been saved if an independent review had been carried out as there was no groundbreaking precedent. Likewise, having the key legal agreements looked at by professionals may have helped to ensure that they reflected the parties’ actual intentions.
How we can help
The BKL VAT team can help ensure that your legal documents stand up from a VAT perspective and are optimally-worded to avoid misunderstandings with HMRC. For a chat about how we can help you, get in touch with Allon Greenstein or send us an enquiry.
