January 18, 2022


HMRC usually takes the position that VAT on professional fees associated with the sale of shares is not recoverable, on the basis that the proceeds are exempt from VAT.

By contrast, VAT on costs associated with issuing new securities, whether bonds, debentures, loan notes or shares, as part of a fundraising exercise, may be recoverable if the funds are to expand an activity that generates VAT-able income.

In effect, the issue of securities is ignored, and you can look through to the VAT status of the activity being funded with the proceeds.

In this case, Hotel La Tour (“HLT”) needed to fund the development of its own new £30m hotel in Milton Keynes (which will ultimately generate VAT-able income.)

Having explored its funding options HLT decided to dispose of the shares in a subsidiary owning an underperforming hotel in Birmingham (and borrow the rest.)

HMRC challenged its recovery of VAT of £76k on marketing and legal costs on the basis HLT had sold, rather than issued, shares.

The First Tier Tribunal has decided that the distinction between share sales and share issues may not apply in fundraising cases.

Further, the Tribunal was satisfied that the purpose of the sale was to fund taxable activity, that the funds were indeed used for that purpose, and the fundraising costs were not cost components of the price of the shares but were instead business overheads. On this basis, HLT was entitled to VAT recovery.

Businesses that have incurred; but not reclaimed; significant VAT on the costs of disposing of subsidiaries in the last four years should now consider whether the purpose of the sale was to fund “downstream” taxable activities.

HMRC may appeal the case to the Upper Tribunal and/or issue a statement on their position via a Revenue & Customs Brief. It could take a lengthy period before the matter is finally settled, and affected businesses should consider whether to make a protective claim within the four year statutory limit for VAT claims.

For further advice, please contact us.


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