If the Supreme Court rules that the taxpayer cannot recover VAT on costs from selling its 100% subsidiary, it implies that VAT recovery depends on the fundraising method used.
What if, in Hotel La Tour Ltd v HMRC [2025] UKSC (awaiting judgment), the Supreme Court decides that the company concerned (HLT) is not entitled to recover VAT on costs it incurred selling a 100% subsidiary to raise funds for a fully taxable business activity? Such a decision would suggest that the extent to which VAT on costs incurred to support a taxable business activity can be recovered depends on the method used to raise the funds.
Hotel La Tour Ltd (HLT) was the 100% owner of Hotel La Tour Birmingham Ltd (HLTB) and supplied management services to it. HLTB owned and operated a hotel in Birmingham. Both companies were members of the same VAT group. HLT decided to construct and develop a new hotel in Milton Keynes. After considering various methods of funding the project, HLT decided to sell HLTB and borrow the shortfall from a bank. This article focuses on the VAT implications of two alternative methods of funding the project.
The first alternative is if HLTB had sold the hotel in Birmingham as a going concern. Subject to certain conditions being met, the sale would be outside the scope of VAT. In these circumstances, the VAT incurred in relation to the sale should have been recoverable on the basis that it related to the sale of afully taxable business as a going concern.
The second alternative is if HLTB had sold the hotel building in Birmingham to a landlord on the basis that HLTB would be the tenant and hotel operator. A decision to opt to tax the building may have been made and notified to HMRC before it was put on the market. In these circumstances, the VAT incurred in relation to the sale should have been recoverable on the basis that it related to the taxable supply of the building.
There are other tax and financial implications which are not considered above, and the chosen method of raising the funds may have been the best method regardless of the outcome of the Supreme Court decision. To quote an extract from the First-tier Tribunal decision in Hotel La Tour Ltd v HMRC [2021] UKFTT 451 (TC): ‘This choice was reinforced by the fact that the decision to build in Milton Keynes coincided with HLT concluding that HLTB’s business had reached the stage where it could not grow any further.’
If business growth is essential to the economy, should the extent to which VAT on costs incurred to support a taxable business activity be recovered depend on the method used to raise the funds?
Home >Articles > What if HMRC win in Hotel la Tour?
What if HMRC win in Hotel la Tour?
If the Supreme Court rules that the taxpayer cannot recover VAT on costs from selling its 100% subsidiary, it implies that VAT recovery depends on the fundraising method used.
What if, in Hotel La Tour Ltd v HMRC [2025] UKSC (awaiting judgment), the Supreme Court decides that the company concerned (HLT) is not entitled to recover VAT on costs it incurred selling a 100% subsidiary to raise funds for a fully taxable business activity? Such a decision would suggest that the extent to which VAT on costs incurred to support a taxable business activity can be recovered depends on the method used to raise the funds.
Hotel La Tour Ltd (HLT) was the 100% owner of Hotel La Tour Birmingham Ltd (HLTB) and supplied management services to it. HLTB owned and operated a hotel in Birmingham. Both companies were members of the same VAT group. HLT decided to construct and develop a new hotel in Milton Keynes. After considering various methods of funding the project, HLT decided to sell HLTB and borrow the shortfall from a bank. This article focuses on the VAT implications of two alternative methods of funding the project.
The first alternative is if HLTB had sold the hotel in Birmingham as a going concern. Subject to certain conditions being met, the sale would be outside the scope of VAT. In these circumstances, the VAT incurred in relation to the sale should have been recoverable on the basis that it related to the sale of afully taxable business as a going concern.
The second alternative is if HLTB had sold the hotel building in Birmingham to a landlord on the basis that HLTB would be the tenant and hotel operator. A decision to opt to tax the building may have been made and notified to HMRC before it was put on the market. In these circumstances, the VAT incurred in relation to the sale should have been recoverable on the basis that it related to the taxable supply of the building.
There are other tax and financial implications which are not considered above, and the chosen method of raising the funds may have been the best method regardless of the outcome of the Supreme Court decision. To quote an extract from the First-tier Tribunal decision in Hotel La Tour Ltd v HMRC [2021] UKFTT 451 (TC): ‘This choice was reinforced by the fact that the decision to build in Milton Keynes coincided with HLT concluding that HLTB’s business had reached the stage where it could not grow any further.’
If business growth is essential to the economy, should the extent to which VAT on costs incurred to support a taxable business activity be recovered depend on the method used to raise the funds?
.tmb-editorspic.jpg?sfvrsn=c9a7a0cc_1)
