Professional fees are connected to share sale

Hotel La Tour Ltd (HLT) held the share capital of HLTB which owned a hotel in Birmingham. Both companies were members of the same VAT group. HLT decided sell the business of HLTB to fund the development of a new hotel in Milton Keynes and carried this out through a share sale.

HLT sought recovery of the VAT incurred on the marketing and legal costs associated with the sale of the subsidiary on the basis that they were directly and immediately linked to developing and operating the new hotel. HMRC denied input tax recovery on the basis that the costs were directly and immediately linked to the exempt share sale. 

The First-tier Tribunal and the Upper Tribunal agreed that the input tax was deductible since the ‘ultimate purpose’ of the share sale was to raise funds for HLT’s taxable business. HMRC appealed.

The Court of Appeal agreed with HMRC that the...