The Court of Appeal (CA) has confirmed that VAT incurred in connection with a disposal of shares in a subsidiary cannot be recovered from HM Revenue & Customs (HMRC) where the costs on which such VAT was incurred was linked directly to the said disposal (Revenue and Customs Commissioners v Hotel La Tour Ltd [2024]) .
Hotel La Tour Ltd (HLT) disposed of a subsidiary which owned and operated a luxury hotel in Birmingham to which it provided management services. It sought to recover circa £77,000 of VAT on professional fees incurred by it in connection with the marketing and sale of the subsidiary. VAT can be recovered when incurred by VAT registered entities directly in connection with VATable supplies to be made by them. HLT's argument was therefore, that because the sale of the subsidiary was to enable it to raise funds for its onward VATable supplies, namely the development and operation of a new hotel in Milton Keynes, it should be allowed to recover such VAT.
HMRC disagreed with HLT and refused recovery of the VAT. HMRC considered the VAT to have been incurred in connection with a VAT exempt sale of shares by HLT and therefore, said it was irrecoverable.
The First-tier Tribunal and the Upper Tribunal agreed with HLT and allowed it to recover the VAT. The CA has however unanimously overturned both rulings. Although HLT's ultimate purpose in selling the subsidiary was to raise funds for its proposed new development, the CA decided that because the professional fees on which the VAT was incurred had a direct and immediate link with the sale of the shares in the subsidiary and the sale was an exempt supply for VAT purposes, such VAT was irrecoverable.
