Understanding VAT Recovery on Share Sale Costs: Insights from the Hotel La Tour Case – UPDATE

You can read the origional article here

Introduction

The recent Court of Appeal (CA) judgment in the Hotel La Tour Limited (HLT) case has significant implications for businesses seeking to recover VAT on advisers’ fees related to share sales. On 21 May, the CA ruled in favour of HMRC, reinforcing the need for a direct and immediate link between the input VAT and either the share sale or the company’s overall business activities for VAT recovery to be permissible. This ruling reiterates HMRC’s traditional approach and sets a crucial precedent for future cases. In this article, we delve deeper into the case, its implications, and how Deeks VAT Consultancy can assist businesses navigating these complexities.

Background of the Hotel La Tour Case

HLT, a holding company of a hotel-operating subsidiary, decided to construct and operate a new hotel. Lacking the necessary funds, HLT opted to sell the shares of its subsidiary to raise capital, supplemented by external loans. As part of this process, HLT engaged various advisers and incurred VAT on their fees. Initially, HLT claimed recovery of this VAT via its VAT returns.

HMRC, however, rejected this claim, arguing that the fees were directly related to the exempt sale of shares, thus making the input VAT irrecoverable. HLT appealed against HMRC’s decision, leading to a series of judicial reviews. While the First-tier Tribunal (FTT) ruled in favour of HLT in December 2021, allowing the VAT recovery, HMRC’s subsequent appeal to the Upper Tribunal (UT) and the CA resulted in a reversal of this decision.

Court of Appeal Judgment

The CA’s ruling hinged on the principle that for VAT recovery, there must be a direct and immediate link between the input VAT and either the share sale or the company’s overall business. The court concluded that the costs in question were directly linked to the exempt share sale, making the input VAT irrecoverable. This decision aligns with HMRC’s orthodox position on VAT recovery related to share sales.

The CA also noted that the existence of a VAT group between HLT and its subsidiary at the time of the share sale did not alter the outcome. The sale was considered an exempt supply within the scope of economic activity, and VAT grouping did not negate the direct link to the share sale.

Implications for Businesses

This ruling has several implications for businesses involved in similar transactions:

1. VAT Recovery Limitations: The judgment reinforces that VAT on costs directly linked to exempt share sales is not recoverable. This underscores the importance of understanding the nature of each transaction and its VAT implications.

2. Protective Claims: Businesses should consider submitting protective claims if there is potential for future appeals. If HLT decides to appeal to the Supreme Court and succeeds, businesses with similar transactions may benefit from these claims.

3. Review of Past Transactions: Businesses that have previously claimed VAT recovery on similar grounds should review these claims in light of the CA judgment. It is advisable to seek expert advice before making any decisions on withdrawing claims.

4. Strategic Planning: Going forward, businesses should carefully plan their transactions to ensure compliance with VAT regulations and optimise VAT recovery. This may involve structuring transactions in a way that links costs to the company’s overall business activities rather than exempt supplies.

How Deeks VAT Consultancy can help

Navigating the complexities of VAT recovery requires expert knowledge and strategic planning. At Deeks VAT Consultancy, we offer comprehensive support to businesses dealing with VAT-related issues, particularly in light of the recent HLT case. Here’s how we can assist:

• Protective Claims Submission: We can help you evaluate the need for and submit protective claims, ensuring your business is positioned to benefit from any favourable changes in the legal landscape.
• Transaction Review: Our experts can review your past and upcoming transactions to determine the potential for VAT recovery. We assess each case based on its specific facts and provide tailored advice.
• Strategic Advice: We offer guidance on structuring your transactions to maximise VAT recovery while ensuring compliance with the latest legal precedents. Our aim is to help you optimise your tax position and avoid pitfalls.
• Ongoing Support: We provide continuous updates on relevant legal developments and offer ongoing advice to ensure your business stays compliant and informed.

Conclusion

The Hotel La Tour case highlights the critical importance of understanding the direct and immediate link requirement for VAT recovery. As businesses navigate these complex regulations, expert advice and careful planning are essential. Deeks VAT Consultancy is here to support you with tailored solutions and strategic guidance.

For detailed guidance and to discuss how we can assist you, please contact us:

Contact Us

Jane Deeks  

Managing Director, Deeks VAT Consultancy  

jane@deeksvat.co.uk  

+44 7710 553831  

Let us help you navigate the complexities of VAT recovery and ensure your business maximises its VAT efficiencies.