Allowable professional costs

In 2006 a large Spanish company was set up AD to make a takeover bid for BAA which operated several British airports. The bid was successful and AD joined BAA’s VAT group.

The group claimed the input tax of more than £6 million in professional costs which AD had incurred in relation to the takeover.

HMRC issued an assessment to recover the tax on the grounds that there was ‘no direct and immediate link between the supplies on which this VAT was incurred and any taxable supplies made (or to be made)’ by BAA’s group.

BAA appealed.

The First-tier Tribunal ruled AD had been carrying on an economic activity even though it ‘never made an actual taxable output supply in its own right’.

The judge said ‘The arrangement and negotiation of group finance facilities is an important role of a group holding company’.

While...