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13 December 2016
Issue: 4580 / Categories: Tax cases

Heating Plumbing Supplies Ltd (TC5480)

Input tax on professional fees related to management buyout

The taxpayer claimed input tax on professional services linked to a management buyout of the company.

The taxpayer said it and its holding company (HPSGL) were members of a VAT group and therefore a single taxable entity. The purpose of the expenditure was to incentivise the employees with a structure that would improve the business and allow it to develop. The input tax was an overhead of the new structure and should be deductible.

HMRC said the expenses had been incurred so that employees could own shares in HPSGL which would earn dividends from the taxpayer. There was no ‘direct and immediate link’ with taxable supplies and no economic activity as required by EU law.

The First-tier Tribunal agreed with the taxpayer. The services were provided to further the taxpayer’s business and since the business consisted wholly of making...

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