In its judgement, the Supreme Court said it was common ground that the scheme technically worked, but the point at issue was whether the scheme was abusive under EU principles. 

The First Tier Tribunal (FTT) held that the scheme was not abusive, while the Upper Tribunal held that it was.

After the Court of Appeal restored the decision of the FTT, HMRC appealed to the Supreme Court., which has now unanimously upheld the appeal and ruled the scheme is abusive. [Commissioners for Her Majesty’s Revenue and Customs v Pendragon plc and others; [2015] UKSC 37, On appeal from: [2013] EWCA Civ 868].

The case concerned a KPMG scheme which Pendragon used on two occasions in late 2000 and early 2001.  Normally, when a car distributor buys a demonstrator car from the manufacturer, it pays VAT on the full wholesale price, and when it eventually sells the car to a customer, it collects VAT on the full retail price.