Act now: possible recovery of VAT in relation to shares and now debt securities

United Kingdom

It looks highly likely that VAT charged on costs associated with a share issue can be recovered, if a recent Advocate General's opinion in the Kretztechnik case (Case 465/03) is to be upheld by the European Court.

What does this mean for you?

If you are a business that has issued shares in the last 3 years, you should put in a protective claim for VAT recovery now in relation to expenses paid in connection with share issues. This will then preserve your ability to recover VAT for external adviser costs from the past 3 years if the court follows the Advocate General.

What about bond issues?

Whilst you may have been aware that VAT is likely to be recovered against the issue of shares, you will not be aware that a second legal challenge is under way in relation to expenses paid in connection with the issue of debt securities. CMS Cameron McKenna's experienced and successful VAT litigation team is currently conducting litigation on this issue. If the same principles which the Advocate General has applied in Kretztechnik can be applied in relation to the raising of certain debt capital, e.g. bond issues, VAT incurred on these expenses will be recoverable in the same way as for share issues.

What sort of savings can be made?

For example, if your business can recover all of its VAT for every £1 million spend on external adviser fees you would be able to recover £150,000 in VAT. This could be VAT on the services of lawyers, accountants, property agents, valuers and any other adviser who has charged VAT.

What type of business does this apply to?

Any business that can recover VAT, in particular, the VATable sector businesses such as manufacturing, utilities, construction, retailers and entertainment. Even banks, insurance and other exempt businesses often have a significant recovery rate.

Who is this relevant to?

Finance Directors, Tax Managers and VAT Managers.

Why CMS Cameron McKenna can help?

Members of our VAT litigation team (led by Peter Mason – formerly Head of VAT at Abbey National) advised on the successful Abbey National case that established the principle that costs incurred in relation to "non-supplies" are linked to the business as a whole and recoverable to the extent the business makes taxable supplies. Peter is currently leading the team conducting the debt securities litigation referred to above. We are, therefore, aware of all the issues and likely opportunities.

We can advise you on the categories of debt security in relation to which you can make a protective claim and so protect your rights in relation to the 3-year cap.

We are happy to talk to you about how to put together your claim to maximise the likelihood of success. We know that this is a complex area and that by getting the right advice on how to submit the claim you stand the best chance of being successful.