VAT recovery on investments and acquisition costs is a complex area. Restrictions on recovery can increase costs considerably. However, following the takeover of BAA by ADIL (Ferrovial) in 2006, VAT incurred through professional fees on takeover bids may now be recoverable.

The case saw ADIL (Ferrovial) make an investment in the shares of BAA and claim recovery on all of the VAT in relation to the professional fees incurred in this transaction.

Initially HMRC disputed the VAT claim as they argued that there was no direct and immediate link between the professional services provided and any future taxable supplies. The tribunal disagreed and concluded that the VAT was recoverable as ADIL would have an active and strategic ongoing governance of the group.

This may give grounds for previously irrecoverable VAT incurred to be recovered.

Each case needs to be assessed on an individual basis, however, if you think this decision could benefit you please contact Menzies’ VAT team for more information at vat@menzies.co.uk.