Direct and immediate link

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A fruit farming business sought to invest its accumulated profits.

It entered into a short-term loan to earn interest, a VAT exempt activity. Unfortunately, the financial adviser who set up the transaction siphoned off the money and used it ‘for other purposes.’ (The Tribunal did not guess what!) The company brought civil proceedings against the adviser and sought to claim input tax on the legal fees incurred.

HMRC rejected the claim.

The FTT considered well established legal principles, based on PVD art 168 which describes “a direct and immediate link” between expenditure and business activity. The FTT held that there was such a link between the legal fees and the exempt activity, even though that activity failed to generate income. Input tax was therefore disallowed.

The taxpayer had argued that the input tax incurred related to the taxable activities of the farm, which the Tribunal did not accept.

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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