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Heating Plumbing Supplies v HMRC

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In Heating Plumbing Supplies v HMRC [2016] UKFTT 753 (10 November 2016), the FTT found that input tax incurred on legal fees for the purpose of a management buyout (MBO) was recoverable.

Heating Plumbing Supplies distributed domestic heating and plumbing appliances. Its board decided to look into an MBO and it engaged two law firms for that purpose. As part of the MBO, the company was acquired by a new holding company, which was owned by the management and staff. Heating Plumbing Supplies’ VAT registration was cancelled and replaced by a group registration. The issue was whether input tax incurred on the services provided by the two law firms was recoverable.

HMRC cited BAA [2013] EWCA Civ 112 as authority for the proposition that costs associated with the takeover, by a holding company, of the shares in a company that itself made taxable supplies, were not costs of that underlying business. However, the FTT noted that the MBO had been implemented for the purpose of expanding the appellant’s business. The FTT therefore found that this case differed from BAA; as, in BAA, the purchasing company had not undertaken any economic activity beyond the mere holding of shares.

The FTT did note that some of the services had been provided before the insertion of the holding company, as they had related to the consideration of and appropriate structure for an MBO. However, there was a direct and immediate link between the services and the appellant’s business; and, since the appellant’s business consisted wholly of the making of taxable supplies, the relevant input tax was recoverable by the appellant.

Read the decision.

Why it matters: Distinguishing the case from BAA (see above), the FTT found that, in this case, the legal services were not provided solely for the purpose of an acquisition of shares with a view to receiving dividends. The input tax incurred on the services was therefore recoverable. This case may be a useful reference in other situations where a holding company is inserted in a group structure.

Also reported this week:

Issue: 1334
Categories: Cases