Following the judgment by the Upper Tribunal in the BAA Limited case, businesses may now find it easier to structure transactions to recover VAT incurred on expenditure attributable to takeovers and acquisitions.
BAA attempted to reclaim the VAT on advisers’ fees in respect of the acquisition of the BAA plc group. Although BAA lost its claim in the Upper Tier Tribunal, it was, however, confirmed by the Tribunal, that an economic activity was being carried on for VAT purposes. HMRC have normally contended that no such activity takes place.
While careful attention to detail must be maintained, it may be possible to structure transactions to enable VAT on advisers’ fees to be reclaimed. There must be a direct and immediate link to the making of taxable supplies i.e. an economic activity. This perhaps could be by way of the intention to make independent, taxable supplies or the intention to form or to join a VAT group whereupon the VAT on expenditure forms a direct and immediate link to the taxable supplies made by the VAT group representative member (bearing in mind any partial exemption implications).
Do advisers’ fees, for example, relate to the acquisition of the business or the future business that will be conducted?
Input tax recovery in cases will be very fact sensitive.
It is not known at present whether HMRC will appeal.
Vaughn Chown at Gabelle will be happy to discuss this or any other VAT issues with you.