The VAT recovery of costs related to the issuing of shares by a business has been a bone of contention for many years and the latest case to proceed through the VAT Tribunals – that of Hotel La Tour Ltd – had seen the taxpayer-supported in its right to recover the VAT incurred on professional fees in this regard.
Hotel La Tour was a fully taxable business, it argued that these professional fees had been incurred to assist in raising funds to support taxable business activities – operating hotels. However, the sale of shares is regarded as a VAT Exempt activity and HMRC were not prepared to accept a recovery position which relied on the costs being seen as having a direct and immediate link to the taxable business activities from the hotel side.
HMRC appealed to the Court of Appeal, the case was heard in April with the decision reported on Wednesday 22nd May 2024. A win for HMRC is the outcome – the VAT incurred was not accepted as recoverable as it was seen to relate directly to a VAT Exempt sale of shares. The detailed decision can be found here.
It’s disappointing news and will need to be considered by any organisation in a similar situation BUT we wait to see if the taxpayer will appeal to the Supreme Court.
Part of the concern is that it means that how a business seeks funding to secure capital directly impacts the ability to recover VAT. If a business secures funding through a loan from the bank or a mortgage then there would be no “exempt” supply made by it to risk the recovery of VAT. However, using the sale of shares creates an additional cost not triggered elsewhere.
Speak to an expert
VAT is a complicated tax and whilst this case may still have a further instalment, it is advisable to be alert to the implications of this decision. If you would like to discuss any concerns in this regard, get in touch with using the form below.
