Whether you are buying or selling a business or restructuring an existing business, VAT is a key and often overlooked consideration.
It is important for vendors and acquirers to fully understand the VAT position of the business being bought or sold.
For vendors, ensuring a business is in the optimum VAT position for sale is a key consideration at the stage a transaction is first considered. Identifying (and rectifying) any VAT risks or exposures at this point means that the business is as attractive as possible from a buyer’s perspective, and can ensure that buy-side due diligence does not uncover any surprises that lead to a reduction in consideration achieved.
For purchasers, a thorough due diligence into a target business is also of vital importance. This is to ensure that any VAT risk is identified pre-purchase and the appropriate consideration is paid, as well as the required warranties and indemnities being written into the legal agreements governing the transaction.
The form of the transaction also has VAT consequences for both the buyer and seller – a share sale and a trade and asset deal are treated differently for VAT purposes. Similarly, the acquisition structure of the buyer must also be given careful consideration.
VAT recovery on the deal costs (often significant) has long been the subject of litigation.
The recovery of VAT incurred on the professional fees associated with share transactions is currently an area where the historic view that VAT in relation to share sales is irrecoverable in virtually all instances is currently being challenged.
The recent Upper Tribunal in the case of Hotel La Tour Ltd v HMRC  UKUT 178 (TCC), highlights the courts willingness to examine an alternative approach. In this case the appellant was a member of a corporate group which ran a hotel business. In order to raise funds needed to construct a new hotel it sold one of its subsidiaries. HMRC disallowed input tax recovery on the professional fees associated with the share sale on the grounds there was a direct and immediate link between those costs and the share sale and it was not possible to look through the share sale to the wider business purpose for entering into the transaction.
If you have sold a business in the last 4 years and blocked VAT recovery on deal fees you should reconsider their VAT recovery position . There is a potential to submit a claim to recover VAT on deals costs. Please et in touch for further information.
At Armstrong Watson, our VAT Team have extensive knowledge and experience in M&A and restructuring support.
We provide can extensive support with M&A transactions including buy side and sell side VAT due diligence and support on restructuring and deals fees.