When a holding company sells shares in a subsidiary, any VAT incurred on professional fees is typically unrecoverable because share sales are considered exempt supplies.

Recently, a hotel group argued that the sale of a subsidiary was directly linked to financing the completion of a new hotel construction. They contended that VAT on professional fees was a general overhead of their business and should be recoverable as input tax. The Tax Tribunals initially supported this argument, prompting many other groups to file protective claims for VAT recovery based on this precedent.

However, the Court of Appeal has now ruled in favor of HMRC, rejecting the taxpayers’ arguments. As a result, input tax recovery on professional fees associated with share disposals, considered exempt supplies, is denied.