This was a successful appeal by a partnership in respect of two lease agreements that were entered into by an associated company. Ashtons Legal (a Partnership) v HMRC  UKFTT 422 (TC).
The FTT said that the input tax incurred could be recovered.
The FTT criticised HMRC for concentrating too much “on what has been granted by the Landlord rather than on what has been received by the Firm”:
“The issue is whether the Firm is entitled to recover input tax. It had a liability in terms of the leases to make the payments of rent if the Company did not; as everyone involved knew, as a dormant company with £1 share capital and no assets or trade, the Company was in no position to pay the rent. If the Firm wished the leases to continue it had to pay the rent. In return for that rent the Firm secured the premises from which it operated its business.”
The company was involved only because a partnership can only enter into a lease in the name of four or fewer partners (Law of Property Act 1925). The partnership firm was not “just a guarantor”. Rather, “the Firm used, enjoyed and benefitted from the rental of the premises and had a vested interest in the supply of those premises for which it was paying”.
For these reasons, the FTT concluded as follows, and allowed the appeal:
“Viewing the arrangements entered into by the Firm in their entirety, the Firm can rightly be regarded as receiving for VAT purposes a taxable supply of goods by virtue of the leases for which it made payment, and the goods so supplied were used for the purposes of the business carried on by the firm. The VAT charged on the rent was therefore input tax of the firm and recoverable as such.”