FTSE companies and those seeking to list on the market could lose millions of pounds in VAT when they raise money through share issues
This warning from PKF follows a decision issued by the European Court, which indicated that German tax authorities were right to deny investment company Securenta its VAT reclaim of around £2.5 million that was incurred in 1994 when capital was raised by issuing shares.
The case Securenta centred on whether an investment company could recover all of the VAT incurred on the raising of capital including the issue of shares.
The Judgment against the company means that certain holding companies may only be able to recover a small percentage of any of the VAT incurred when they issue shares, said PKF.
The company added that HMRC may also seek to recover VAT and interest and penalties from such firms that have reclaimed the tax on share issues in the past three years.
Some companies coming to either the Main List or AIM will be exposed to irrecoverable VAT on services incurred on share issues, claims PKF.
The accountancy specialists' Gerry Myton, a VAT partner, said: 'The Securenta decision may prove very expensive for some quoted companies.
'It is a complex area, but some quoted companies, which have issued shares or do so in the future, may have very substantial irrecoverable VAT on their costs running into millions of pounds.
'We expect companies most likely to suffer significant VAT costs will be investment companies, like Securenta, and holding companies with trading subsidiaries outside the UK.'
Mr Myton continued: 'At a time when the level of new issues and fundraisings has dipped with the anticipated economic downturn, this is simply a further piece of bad news that the markets didn't need'.
