VAT: Heating Plumbing Supplies Ltd – FTT decision | KPMG | UK
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VAT: Heating Plumbing Supplies Ltd – FTT decision

VAT: Heating Plumbing Supplies Ltd – FTT decision

The FTT has supported the input VAT recovery of VAT on the professional fees of a management buyout.


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This case concerns VAT recovery on the professional fees of a management buyout (MBO) of a fully taxable trading company. A holding company (HoldCo) was formed to be the MBO vehicle and it formed a VAT group with the trading company. The trading company was the representative member of the VAT group. The companies were VAT grouped by the time the MBO professional fees were invoiced. Although the trading company paid the remuneration of a director, the HoldCo did not make any supplies to the trading company between the time of the MBO and a visit by HMRC in 2014, three and a half years later. HMRC therefore sought to disallow the VAT on the MBO costs saying there was no link between the costs and taxable supplies. The First-tier Tribunal (FTT) decided these costs were overheads and the input VAT was recoverable. 

The taxpayer argued that:

  • The services were supplied to a single taxable person (the group) which only made taxable supplies; and/or alternatively
  • The supplies were made to the representative member, which only made taxable supplies; and/or alternatively 
  • If the supplies were made to the HoldCo then it intended to make supplies that would be taxable if it was a separate entity from the trading company.

HMRC, citing BAA, argued that the costs were consumed within the buyout process. The trading company had been acquired as an investment. These costs were not overheads of the business and in the absence of any intra group supplies by the HoldCo that the trading company would then use in the business, there was no link to taxable supplies. Just joining the VAT group could not make otherwise irrecoverable VAT recoverable. HMRC relied on the Advocate General opinion in Commission v Ireland (C-85/11), paragraph 43 which said that joining a VAT group did not expand recovery rights of the members. 

The FTT did not consider that there was a mere acquisition of shares in order to receive dividends. The background to and motivation for the costs was important here. The FTT considered that the services were incurred to develop the business and irrespective of who received them, were incurred at the instigation of the trading company. The developed business was fully taxable so the VAT was deductible. 

There is some doubt as to whether the services were supplied to the HoldCo or to the trading company but nothing material seemed to hinge on that, presumably as the two were VAT grouped at the tax point of the supplies. 

The FTT decided these costs were overheads incurred for the direct benefit of the business, to enable employees to acquire a stake and incentivise them to develop the (taxable) business. The FTT does, however, seem to distinguish a MBO from a third party takeover. It would therefore seem that in the case of a third party takeover the HoldCo may well have to make supplies (even if they are disregarded as intra group) in order to show its active management involvement with the acquired company. But in this case, where the deal was a MBO, the lack of (intra group) supplies by the HoldCo did not prevent there being a link between costs and taxable supplies by the VAT group. 

This is another example of looking through the fact that the HoldCo had made no supplies and seeing a wider purpose behind incurring the VAT, and thus a link to taxable supplies, which makes the VAT deductible. 


For further information please contact :

Karen Killington 

Steve Powell


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