In HMRC v Hotel La Tour Ltd [2025] UKSC 46, the Supreme Court upheld the Court of Appeal’s ruling that input VAT on professional fees incurred in connection with an exempt share sale were not deductible.
Hotel La Tour Ltd (HLT) owned a 100% subsidiary, Hotel La Tour Birmingham Ltd (HLTB), which owned and operated a luxury hotel.
- HLT provided Management services to HLTB. Both companies formed a VAT group.
- HLT decided to build a new hotel in Milton Keynes, and concluded that the Birmingham hotel could not be grown any further as a business within the group.
- As a result, the shares in HLTB were sold and the proceeds were used to fund the Milton Keynes build.
- Professional fees of approximately £383,000 were incurred in respect of the share sale, along with approximately £77,000 of Input VAT, which HLT reclaimed.
- HMRC refused the input VAT claim on the basis that the sale of shares was exempt from VAT. It broke the direct and immediate link to taxable supplies.
- HLT argued that the services received on the share sale were directly and immediately linked to its downstream taxable activities; the development and operation of the Milton Keynes hotel, which was financed by the sale of shares.
- HLT Appealed to the First Tier Tribunal (FTT), which found in HLT’s favour. The FTT concluded that there was not a direct and immediate link between the professional fees and the share sale.
- HMRC subsequently appealed to the Upper Tribunal (UT), which upheld the FTT’s decision: the purpose of the transaction was fundraising, and those funds were later used to make taxable supplies.
- HMRC then Appealed to the Court of Appeal (CoA), which ruled that a company could not recover input VAT incurred in connection with selling shares in its subsidiary. There was a direct and immediate link with an exempt supply.
- HLT appealed to the Supreme Court (SC).
The SC found that:
- The CoA was correct to reject the FTT and UT’s application of the case law.
- The test that the FTT and UT applied looked at whether the professional fees were a ‘cost component’ of the share sale (and hence whether there was a 'direct and immediate link’).
- The professional fees were used in, were cost components of, and were directly and immediately linked with the exempt share sale.
- The fact that HLT and HLTB were in the same VAT group did not affect the fact that the share sale was a VAT-exempt transaction.
The appeal was dismissed.
Useful guides on this topic
Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one?
Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?
Management re-charges (holding companies)
When are intercompany charges subject to VAT? What rate of VAT applies to an intercompany charge? Is an intercompany charge a supply for VAT? Is there VAT on an intercompany payment for group relief?
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