HMRC successful on appeal in take-over costs case

In early 2010 the courts considered a case where BAA was aquired via a bid vehicle ‘ADIL’. ADIL incurred significant fees in the acquisition process in spring/summer 2006 but did not join the BAA VAT group until September 2006 at which point VAT was claimed on the acquisition costs.

HMRC disallowed the input tax recovered, which was in the region of £6.7M, on the basis that there was ‘no direct and immediate link between the supplies on which this VAT was incurred and any taxable supplies made (or to be made)’ by the VAT group. BAA (as representative member of the group) appealed the decision and the Tribunal allowed that appeal on the basis that:

• ADIL did carry on an economic activity from its inception, although it never made a taxable supply in its own right,
• Applying the principles established in Faxworld that ‘the taxable supplies of the BAA VAT Group should be imputed to ADIL’, HMRC have now  successfully appealed this judgement at the Upper-tier Tribunal and that decision was published on 24 June 2011

The input tax should be linked with the outputs of the representative member of the BAA VAT group when considering recovery and as such should be part of the general overheads of that representative member.

• If you have been assessed by HMRC for VAT recovered on acquisition fees or have not recovered this input tax then please speak with your usual CVC contact who will consider the extent to which this case will support a claim.

 

HMRC appealed on the grounds that the First-tier Tribunal erred in law in holding that ADIL was entitled to recover the VAT as input tax. The Upper-tier Tribunal allowed HMRC’s appeal holding that ADIL had no intention to make onward taxable supplies at the time when ADIL incurred the VAT. The Tribunal also did not consider that BAA’s taxable supplies could be attributed to ADIL by reason of the VAT grouping provisions.

The Chairman said that while it is true that the VAT grouping provisions treat all supplies made by group members as being made by the representative member, it is only from the time at which all of the relevant companies are members of a single VAT group. At the time at which ADIL incurred the relevant VAT, ADIL was not a member of the BAA group (and was found to have no intention of joining the VAT group prior to completion of the BAA takeover). The VAT grouping provisions are not in any sense retrospective.

If you have incurred VAT in similar circumstances and are concerned about VAT recovery please contact us.