A company (‘the company’) has recently successfully appealed to the First Tier Tax Tribunal against an HMRC VAT Assessment where the issue centred around whether or not the company was entitled to deduct input VAT in relation to services provided by its tax advisers.

Timothy Thompson of Kangs Solicitors outlines the basis of the Appeal. 

The Circumstances | Kangs First Tier Tax Appeal Tribunal Solicitors

  • The company employed tax advisors to advise on the structure of a tax scheme which would allow its employees to be financially rewarded in a way which would avoid payment of PAYEand Employers’ National Insurance.
  • The tax advisor’s fees were paid by the company, which sought to recover the VAT as input tax.
  • HMRC challenged this recovery on the basis that incentivising employees does not have a direct and immediate link with the purpose of the business with the result that the input tax was not recoverable.

The Relevant Law | Kangs Tax Appeal Advisory Team    

The VAT Act 1994 (‘the Act’) states:

Section 24

  1. Subject to the following provisions of this section, “input tax”, in relation to a taxable person, means the following tax, that is to say—
    • VAT on the supply to him of any goods or services;
    • VAT on the acquisition by him from another member State of any goods; and
    • VAT paid or payable by him on the importation of any goods from a place outside the member States,
  2. being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.

Section 26

  1. The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.
  2. The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business— (a) taxable supplies;

The Appeal | Kangs VAT Litigation Solicitors

There were two specific issues for the Tribunal to consider:

(1) Whether the services supplied to the company by its tax advisors, were used for the purpose of its business pursuant to s24 of the Act.   

(2) Whether the services supplied have a direct and immediate link with exempt supplies having regard to an exemption falling within s26 of the Act.   

The Tribunal found in favour of the company and the appeal was allowed.

How Can We Help? | Kangs Tax Tribunal Solicitors

Kangs Solicitors fields a team which represents clients in Tax Appeals and HMRC investigations of every nature.

For further information you are invited to turn to the links:

Please feel free to contact our team through any of our solicitors named below who will be happy to provide you with some initial advice and assistance.

Hamraj Kang
07976 258171 | 020 7936 6396 | 0121 449 9888

Tim Thompson
020 7936 6396 | 0121 449 9888

John Veale
0121 449 9888 | 020 7936 6396