VAT groups and deal costs: why HMRC’s policy needs rethinking

HMRC’s policy on the recovery of input VAT on costs associated with the acquisition of shares has been a battleground for many decades. In the FTT case of Heating Plumbing Supplies Ltd, HMRC argued that VAT incurred by a fully taxable VAT group could not be reclaimed on the basis that the costs had been incurred by a member of the VAT group which did not itself make any supplies. Allowing the taxpayer’s appeal, the tribunal has confirmed that, where there is a VAT group, HMRC cannot look at the activities of a company in isolation but must take account of the group’s activities as a whole.