Tribunal – VAT recovery on takeover bid
The tribunal recently heard an appeal concerning VAT input tax recovery incurred by a bidder on fees paid in respect of a takeover bid. The recovery of VAT in these and similar situations is complicated. HMRC and taxpayers often take a different view as to the recoverability of VAT incurred on fees. Where the sums are large, as in this case, the parties leave it for the Courts to decide.
In this case the bidder was successful in a takeover bid for a large UK airport operator. Following the takeover the bidder joined the same VAT group as the target company. The representative member of that VAT group claimed recovery of the VAT incurred on fees in respect of the takeover as input tax which formed part of the VAT group’s general overheads. HMRC disputed the input tax recovery, of some £6.7m and raised an assessment.
HMRC contended that the VAT group had no right to claim the VAT incurred on fees relating to the takeover. The crux of the case rested on whether the activities of the bidder company were an ‘economic activity’. Whilst HMRC had no objection to the bidder company joining the VAT group they contended that the purchase of shares in a listed company was not an economic activity for VAT purposes and that there was no entitlement to recover VAT already paid.
The taxpayer disagreed and argued that the VAT on fees relating to the turnover was recoverable as the activities of the bidding company did constitute an economic activity for VAT purposes.
The tribunal ultimately allowed the taxpayer’s appeal and accepted that the bidder company did carry out an economic activity although did not make any taxable supplies in its own right. However, the bidder company was entitled to take advantage of the taxable activities of the VAT group of which it was a member and therefore there was an entitlement for the VAT group to recover the VAT incurred.