In Taylor Pearson (Construction) Ltd (TPCL) v HMRC TC07464, the First Tier Tribunal (FFT) concluded that input tax incurred on services provided by tax advisors for the company's directors was deductible.
- The appellant decided to reward its directors with bonuses and shares.
- It engaged tax advisors to advise on how the company might reduce its tax and NIC liabilities in rewarding its directors.
- The advice also told the directors how to reduce their income tax liabilities.
The issue was whether the services supplied were used for the purpose of the company’s business and if whether the services supplied were in relation to the issue of share capital in the company. The issue of shares is not a supply for VAT purposes and the associated input tax is treated as part of the general overheads of the business and claimed partly or wholly, depending on the nature of the business supplies.
HMRC argued that input VAT incurred was for defending the individual directors personally, and not entirely unconnected to the business, was therefore not deductible.
The taxpayer appealed, holding that the input supplies were for the purpose of the business and had a direct and immediate link with the company’s taxable output supplies.
The FTT decided that the services were used for the purposes of the company’s business and they did not have a direct and immediate connection with the issue of share capital. The judge stated that “...The advice in question was provided to the company and although the directors were significant beneficiaries of the arrangements that was entirely in their capacity as directors and employees of the company and not in any personal capacity”.
The appeal was therefore allowed.
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Directors' tax planning: Update October 2019
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