How to Navigate the Latest VAT Update: Understanding Input VAT and Share Sales

Don’t miss out on the latest VAT updates! Stay informed and stay ahead. Read our VAT expert Julie Green’s latest update to understand the recent changes in VAT regulations.

In the ever-evolving landscape of VAT regulations, it’s crucial to stay informed about the latest changes. One such significant VAT update that has caught the attention of many businesses is related to the recoverability of input VAT in the context of share sales. This article aims to shed light on this important update and its implications for businesses.

Unpacking the Court of Appeal’s Decision

The Court of Appeal has recently brought the direct and immediate link test for input VAT incurred in connection with share sales into the spotlight. This decision holds significant implications for businesses that are raising finance for taxable activities through the sale of shares in subsidiaries, especially when such a sale amounts to an exempt supply. 

Case Study: Hotel La Tour Ltd

A key case in this context is HMRC v Hotel La Tour Ltd. In this case, Hotel La Tour Ltd (HLT), a holding company, decided to construct and develop a new hotel. To finance this development, HLT decided to sell its subsidiary, Hotel La Tour Birmingham (HLTB), and borrow the remaining funds.

HLT incurred substantial professional fees, including VAT on those fees, during the sale of HLTB. However, HMRC denied the recovery of this input VAT, arguing that the VAT was directly and immediately linked with the exempt sale of shares in HLTB.

Implications for Businesses

This decision underscores the importance of understanding the nuances of VAT regulations when planning business operations. Businesses involved in the sale of subsidiary companies, like HLT, may face challenges in recovering VAT, which may have been previously blocked.

It is recommended that all businesses involved in mergers and acquisitions should seek advice on their VAT position early in the planning state of corporate finance deals.

Conclusion

Keeping up with the latest VAT updates is crucial for businesses to effectively navigate the complex landscape of VAT regulations. This recent update on the recoverability of input VAT in connection with share sales serves as a reminder of the importance of meticulous planning and expert advice in this area.

Read our update in full here. 

Remember, every financial decision you make today impacts your business tomorrow. Make those decisions count with Haines Watts. 

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