Can input tax recovery on such advice, paid for by the company, be treated as input tax of the company and reclaimed by it accordingly?
Well, the basic answer for all questions of ‘can we reclaim input tax?’ is yes, to the extent that there is a direct and immediate link to future taxable business supplies being made by the claimant.
Where legal or consultancy advice etc is received regarding shareholder matters, one should ask ‘who is the supply actually being made to’?
For accountancy and/or legal advice in respect of sale of shares, which the company pays for, may ultimately benefit from, and they are shares in the company, one should consider whether the company receives the services in respect of its trading, or the individual shareholder receives the service as they actually own the shares.
One can refer to guidance at VIT13600 – VAT Input Tax – HMRC internal manual – GOV.UK (www.gov.uk) and VIT13700 – VAT Input Tax – HMRC internal manual – GOV.UK (www.gov.uk)
These confirm that where the supply is to the shareholder in their personal capacity (of owning shares in the company) then input tax is not reclaimable by the company as the shareholder is the recipient of the supply.
Where a company may be considering a share issue to engender new investment and raise funds to support the trading activity of the company, then it could be deemed that any related legal advice received would be in respect of the future trade of the business. Input tax would therefore be allowable (subject to the usual partial exemption rules) as the company is the recipient of the supply and there will be a direct link to its future business supplies.
One may also consider whether the ‘sale of the business’, as a result of the change in shareholders, is a Transfer of a Going Concern.
There may be effectively ‘new owners of the business’ so would any VAT incurred in making the transfer become input tax of the selling business? One should refer to VTOGC3100 – VAT Transfer of a going concern – HMRC internal manual – GOV.UK (www.gov.uk) which confirms that a transfer of shares in a company is not a transfer of assets of the company that may form the transfer of a ‘business’ as a going concern. Any VAT incurred on legal advice and consultancy etc will therefore still be subject to the guidance in VIT13600 & VIT13700.
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