KRS Finance Ltd v The Commissioners for HMRC
Decision date: 5 October 2023
Neutral citation: [2023] UKFTT 855 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
KRS Finance Ltd (representative of a VAT group) appealed HMRC decisions on the attribution of marketing expenditure and two proposed partial exemption special methods (PESMs), plus related error correction notices. The tribunal found the contested advertising objectively and exclusively promoted the equity release (ER) "hero" product and therefore had a direct and immediate link to ER supplies, dismissed the Marketing Expenditure Appeal, and rejected both PESM1 (Transaction Count) and PESM2 (Income Adjusted) as not fair and reasonable or more accurate than the standard method; all appeals were dismissed.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
Where advertising objectively and exclusively features a specific "hero" product and the content and customer journey demonstrate that linkage, the associated input tax can be attributed directly and immediately to that supply rather than treated as an overhead; additionally, a proposed PESM must be supported by objective evidence that grouped transactions consume broadly similar residual inputs, otherwise it is not fair and reasonable.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The tribunal indicated that a taxpayer’s subjective motive to use a hero-product strategy (for example to enable cross-selling) is irrelevant to establishing a direct and immediate link—the objective content and customer journey govern attribution. It also suggested that material variations to a proposed PESM should be put to HMRC first so they can consider them before the tribunal will entertain amended methods on appeal.