VAT registration and recovery of VAT incurred on expenditure has always been tricky for holding companies and things have become even more difficult as more and more cases suggest that HMRC may be targeting holding company structures.
5 November 2019
There have been a number of cases over the years dating back to Polysar in the 1990s and more recent cases such as Norseman Gold, BAA, Ryanair and W Resources. A number of key points to emerge from these cases are:
- The holding company must be carrying on an economic activity and be registered for VAT. This tends to mean that it has direct or indirect involvement in the management of its subsidiaries rather than issuing invoices for ‘management charges’ with no real managerial involvement.
- The holding company must actually be the recipient of the supplies that it wants to recover VAT on. May seem like an obvious point but is something that can cause issues particularly in a takeover situation where an SPV is formed to make the acquisition.
- Likewise, the holding company must also have contracted for the services.
- There must be a clear link between the supplies made by the holding company to the subsidiaries and the costs on which it wants to recover VAT. This usually means putting in place clear agreements between the parties detailing the services to be provided, the charges to be levied and the dates when payment must be made and the subsidiary must actually pay for the services it receives.
There is clear evidence that HMRC officers are targeting holding companies and group structures looking for any situations where they believe they can issue an assessment.
Affected businesses should, therefore, take immediate action to protect their VAT position.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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