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Can I claim input tax when I’ve paid for someone else?

14th Aug 2015
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One important principle of VAT is that input tax is deductible only by the person to whom the supply is made.

There is a series of Tax Tribunal decisions where professional and legal services are supplied in relation to corporate re-structuring. Such advice may be received by the companies involved, by Directors, or by Shareholders. At first sight it may not be clear as to who are the recipients of the supplies.

In one case, HMRC accessed the ‘work stream’ where a range of services was provided in relation to a corporate re-structure. On investigation, the details of the work stream was different from the original letter of engagement. (That of itself presented no concern, as frequently the terms of a piece of work will evolve from the original expectation.)

On Appeal, the Tribunal found that the professional and legal services were received by Shareholders, but the fees were paid by the Company, presumably as an inducement to enter into the transaction. The services addressed issues of individual Shareholders’ contractual arrangements, and taxation matters.

The Tribunal held that, since the services were made to the Shareholders, the company was not entitled to input tax recovery.

(link to case: http://www.bailii.org/uk/cases/UKFTT/TC/2015/TC04487.html)

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