VAT – input tax on professional fees
A recent Tribunal case examined the VAT deductibility of expenses incurred by a travel group facing a financial crisis which threatened the business’s survival. The travel group incurred significant costs including over £1m of VAT charged by a large accountancy firm related to the provision of professional services which included liaising with and making representations to banks and other creditors of the taxpayer, a strategic review of the taxpayer’s business and making restructuring proposals.
HMRC’s view was that although the travel group paid for these services, the supply was made to banks and other institutions and not to the taxpayer and therefore there was no right of deduction to the input tax claimed. HMRC contended that any benefit to the taxpayer was ancillary to the supply.
This is a scenario that has been before the Courts many times before. The Tribunal, in finding for the taxpayer, relied on previous case law in determining that the taxpayer did receive the services in question. As these services were used for the taxable business of the taxpayer the VAT input tax claim was valid. It is accepted case law that the same supply can be made to more than one recipient.
It remains to be seen if HMRC will appeal this decision. If there is no appeal this will be an important case for taxpayers who find themselves in a similar position.