Following the BAA case, HMRC has shifted its position on the recovery of deal fees by NewCo holding companies. This means that simply VAT grouping NewCo with the target will no longer be sufficient to allow recovery. Likewise, the traditional method of charging management fees in return for payments needs to be looked at afresh. New HMRC guidance requires that the management fees reflect the deal fee liability over a ‘sensible period’ of five to ten years. It will be crucial for advisers to identify this issue at an early stage, to ensure that NewCo has records of its intention to provide management services and to issue all engagement letters directly to the NewCo.
