Topic: VAT Recovery on Share Transactions

My client engaged a private advisory firm to assist with the acquisition of a company. The acquisition was completed in March 2018 and immediately on completion the invoices with VAT from the professional advisers were issued to my client directly and not to the company.

Initially no claim to deduction of input tax was made on these invoices and the amounts were treated as share issue costs. On second review, my assistant suggested VAT may be recoverable on the invoices.

Could you kindly advice if on the matter of VAT recovery and how to proceed. Any reference to relevant case law would be appreciated.

Re: VAT Recovery on Share Transactions

The VAT treatment of share transactions has historically been a complex issue particularly for taxpayers in terms of whether VAT can be recovered on related costs. HMRC finally published its latest guidance earlierin 2017 in VAT Manual VIT40600, which sets out what it now considers to be the criteria for input tax deduction by HoldCos (holding companies) with the two main conditions for VAT recovery being shown below:

1. It must be the recipient of the supply, i.e. it has contracted for the supply (including by novation), it has made use of the supply, and has been invoiced and paid for the supply; and

2. The costs on which VAT is incurred must have a direct and immediate link to taxable supplies conducted by the HoldCo (or the VAT group that the HoldCo is a member of) and this is supported by management fees, supplying interest bearing loans to non-EU,