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UK — FTT: economic activity ceased on sale of business, but sale of IP was separate economic activity 

2 hours ago
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Summary
  • In Compound Photonics Group Ltd v HMRC [2026] UKFTT 985 (TC) (30 June 2026), the FTT held that the appellant’s economic activity ceased in May 2017 on the sale of the UK Group’s operating business — no ongoing intention to trade in the UK — but that the subsequent sale of retained IP to Snap Inc for $101m (“Snap Sale”) constituted a separate economic activity. [vlex.co.uk], [claritaxnews.com]
  • The Tribunal applied the Wakefield College test and confirmed that “an intention to carry on economic activity can itself constitute economic activity”, but stressed that an intending trader must “take control of its own destiny” — merely holding a valuable asset in the hope of a future market is not sufficient. [claritaxnews.com]
  • The judgment is a useful benchmark on the boundary between mere holding of assets and economic activity for VAT input tax recovery — critical for wind-down phases, dormant VAT groups and IP-holding vehicles considering sale. [vlex.co.uk], [casemine.com]
Article
In Compound Photonics Group Limited v The Commissioners for HMRC [2026] UKFTT 00985 (TC), judgment dated 30 June 2026, the First-tier Tribunal (Judge Frost and Ian Shearer) considered HMRC’s assessment disallowing input tax of £544,878 for VAT periods 03/18–12/20 and 06/21–12/21, plus £11,542 in respect of 03/21, on the ground that the appellant (representative member of a VAT group) had ceased economic activity on the sale of the UK operating business in May 2017. [vlex.co.uk]
Two questions were before the Tribunal:
  1. Whether the appellant ceased economic activity on the May 2017 Disposal of the UK operating business (retaining certain IP in a subsidiary, CPL);
  2. Whether the subsequent Snap Sale — the sale of the retained IP to Snap Inc for $101m on 6 January 2022 — constituted a separate economic activity. [vlex.co.uk], [casemine.com]
The Tribunal answered both in the affirmative:
  • Cessation. Applying Wakefield College v HMRC [2018] EWCA Civ 952, the FTT accepted that intention alone can constitute economic activity, but held that “an intending trader must take control of its own destiny and show that it is doing something to support its intention to carry on economic activity, beyond simply holding assets. Otherwise, it would naturally follow that the holding of any valuable asset would give rise to economic activity — on the basis that such assets may one day be exploited or sold. Holding an asset in the hope of a market arising in future is too vague to amount to an intention for these purposes … we conclude that there was no ongoing intention to carry on economic activity following the May 2017 Disposal.” [claritaxnews.com]
  • Snap Sale. Nevertheless, the subsequent 2022 sale of the developed IP to Snap Inc was itself economic activity — a distinct, terminatory transaction connected to the earlier economic use of the assets and capable of supporting input VAT recovery on properly-attributed costs. [claritaxnews.com], [casemine.com]
For groups winding down UK operations while retaining IP or other intangibles, the practical implications are clear:
  • Do not assume continued input VAT recovery merely because valuable assets sit on the balance sheet;
  • Document an active intention and steps taken to exploit the IP (licensing efforts, marketing, R&D top-ups, strategic reviews) if you want to preserve intending-trader status;
  • Consider isolating the IP-holding entity’s VAT status and cost base so that a one-off disposal can carry its own attributable input VAT recovery;
  • Beware of long gaps between the ostensible cessation of trading and the eventual disposal — HMRC will scrutinise input VAT claimed in-between.
Sources

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