VAT on the costs of fundraisingCountry-specific update: UK
Work Group (WG) acquired the taxpayer in a reverse takeover. WG was not carrying on any economic activity for the 20 months or so prior to the takeover. WG joined the Culver Holdings Limited VAT group on the same day as that on which the takeover took effect. WG received and paid for services in relation to the takeover and services in relation to fundraising, and sought, via the VAT group representative member, Culver (the company that WG acquired), to recover the input tax. HMRC denied the claim on the basis that WG itself did not make or intend to make supplies within the scope of VAT.
The tribunal accepted that:
- WG intended to join the VAT group, allowing the taxpayer's economic activity (and taxable transactions) to be relied on as "downstream" current or intended activity (or taxable supplies) of WG.
- The fundraising was one of WG's purposes of the takeover and one of its purposes for receiving the relevant services.
- The relevant services were supplied to, and received by, WG.
However, the tribunal rejected the taxpayer's appeal to allow input tax because of insufficient evidence that any of the funds raised were intended to be (or were) used for the downstream taxable operations rather than to fund acquisitions.
This case indicates that input VAT recovery on costs associated with corporate finance and company acquisitions is a complex area. Taxpayers may find the case interesting due to the tribunal's analysis of the language used in the fund-raising documentation, which failed to evidence the requisite intention to justify VAT recovery.