July 27, 2023


Since we first reported on this case in January 2022 HMRC has lost its Appeal to the Upper Tribunal. See here.

HMRC persisted in its argument that where funds are being raised for a specific purpose, it is not possible to look at the eventual purpose of the fundraising, when deciding whether VAT recovery on the costs of raising those funds is possible. Rather, you only look at the immediate supply to which a cost is linked. The sale of shares is VAT exempt, so according to HMRC, VAT on the fees charged by advisors working on the sale can only be exempt input tax.

The UT disagreed. One factor is that shares usually have a market value. In this case, HLT couldn’t increase the price for the shares to include the costs of paying its professional advisors. These costs therefore reduced the net proceeds of the sale, meaning that less was available to fund the downstream activities. The professional fees were thus “cost components” of the downstream activities, not the sale of the shares.

HMRC has yet to comment on its loss, and may Appeal further. But any business affected by this decision needs to bear in mind that potential claims are restricted to four years. Thus, waiting until the dust has finally settled could lead to a viable claim being out of time.


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