Understanding VAT Recovery on Deal Costs: Navigating Complex Rules and Strategic Opportunities

• Navigating VAT on deal costs is complex and risky due to changing rules and interpretations.
• Missteps can lead to unrecoverable VAT, increased costs, or scrutiny from HMRC.
• Businesses face challenges balancing commercial needs with VAT compliance during acquisitions, restructurings, or disposals.
• The Supreme Court decision in Hotel La Tour is significant for VAT recovery on costs linked to exempt share sales.
• VAT recovery on deal-related costs requires careful consideration of the acquisition’s nature and its link to economic activities.
• VAT recovery is only allowed if there is a direct link between costs and taxable supplies.
• VAT cannot be recovered for acquisitions made purely for investment purposes.
• VAT can be recovered if the acquiring entity provides management services to the target company.
• A formal management services agreement and direct supplier engagement are necessary for VAT recovery.
• VAT recovery is allowed if the acquisition extends the acquiring company’s existing taxable activities.
• The acquisition rationale, such as venue expansion, can support VAT recovery.

Source: haysmac.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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