6 October 2014

Following the BAA case in the UK, HMRC has issued revised guidance on the recovery of input VAT by holding companies. The major change is that they no longer accept that simply joining a VAT group gives the holding company the right to recover VAT incurred on its costs, by treating it as attributable to VAT group outputs.
 
Instead, they expect to see a management charge to relevant subsidiaries within a VAT group, through which the input VAT can be traced to the output of the subsidiaries. Therefore they say the management charge must be real, and must seek to recoup the capital costs concerned (particularly acquisition costs) over a “reasonable” period of five to ten years.
 
There appears to be the possibility that some of the input VAT may be attributable to taxable supplies and thus recoverable, whilst some of it may be attributable to non-business investment activity and thus not recoverable.
 
This new guidance is susceptible to change when the CJEU reaches judgment in the cases of Larentia & Minerva Case C-108/14 and Marenave Schiffahrts AG Case C-109/14, but these are fairly recent referrals so the judgments will be some time away.