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VAT recovery in the Natural Resources sector
Robert Marchant
14/06/2018
canyon
Businesses operating in the Natural Resources sector still face challenges recovering UK VAT.

HMRC has been narrowing the circumstances when VAT can be reclaimed, and have actively challenged businesses when they consider VAT was incorrectly recovered.

UK holding companies and VAT recovery

Businesses in the Natural Resources sector often have a UK holding company to attract investment. This company office will typically employ a number of senior management, legal and financial staff, but the exploration/revenue generation asset is owned by another company.

The challenge around VAT recovery in these cases typically focuses on whether there is a sufficient link between the costs incurred by the UK holding company, and taxable supplies being made by either it or its subsidiaries.

Common reasons why VAT has been irrecoverable

  • No economic activity in UK plc, or insufficient link between costs incurred and that taxable activity.
  • Common directors of the holding and operating companies mean that no actual services are being provided by UK plc.
  • Informal arrangements mean it is not possible to evidence taxable supplies being made by UK plc.
  • Failure to invoice and/or a lack of payment.

Talk to your tax advisor

For companies in ongoing dispute with HMRC, we recommend talking to your tax adviser straight away.

For companies setting-up for the first time, or which are yet to review their arrangements, now is the time to put the business in the strongest position possible to justify VAT recovery.

How Crowe UK can help

We help businesses maximise their VAT recovery by:

  • reviewing your current arrangements to make sure they would stand up to challenge
  • supporting you with any remedial actions you may need to take; for example: the preparation of a Management Services Agreement, or invoice templates to evidence the economic activity being carried out
  • helping you resolve disputes with HMRC.

CJEU vs Ryan Air Ltd

A case recently heard by the Court of Justice of the European Union involved Ryanair Ltd, who had incurred a significant amount of VAT on its intended acquisition of Aer Lingus.

The deal was aborted which raised the question of whether the VAT incurred was reclaimable due to there not being any taxable supplies of management charges made.

The Advocate General opined that the VAT should be recoverable because of documentary evidence that the costs would be used in the making of future taxable supplies.

This judgement of the court is expected in the near future, and it will be interesting to see what impact, if any, it has on HMRC’s approach in the UK.

To discuss these issues and how they apply to your business, please contact Robert Marchant, Partner, VAT.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT
London