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Construction, Land and Property

Raising funds


A business operated a hotel and wanted to build and operate a new hotel. In order to finance this it agreed to sell the shares in the existing business (the buyer also committed to funding settlements of existing loans). The monies from this transaction were then used to start the project of the new hotel.

HMRC disallowed the reclaim by the seller of the VAT incurred on the marketing and professional fees for the sale as it related to a sale of shares (exempt from VAT).

The VAT Tribunal found that the VAT was recoverable as it related to raising funds to enable a future taxable supply (the operation of the new hotel once complete).

As a first tier Tribunal decision it doesn’t set a precedent and therefore HMRC may not wish to take it to the Upper Tier in case they lose and the precedent is set. However, if, in the last four years, a business has undertaken a funding exercise in similar circumstances and not reclaimed the VAT please contact Ian Marrow in the RL VAT team.

This article is from the latest issue of our Construction, Land and Property Bulletin - Spring 2022. To receive future copies of any of our newsletters directly to your inbox please visit our preference centre and register your interest.

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