Victoria Oil & Gas: holding company VAT recovery principles reinforced

The recent First-tier Tribunal decision in Victoria Oil & Gas plc v HMRC [2026] UKFTT 1246 (TC) provides a useful reminder of the principles governing VAT recovery by holding companies.

Rather than establishing a new legal test, the decision reinforces the importance of understanding the activities undertaken by a holding company, having appropriate evidence to support those activities and establishing how expenditure relates to taxable supplies.

The decision

Victoria Oil & Gas plc (VOG) was the holding company of an oil and gas group. It supplied management and administrative services for consideration to Gaz du Cameroun and Gaz du Cameroun SARL, referred to collectively as GdC. It was accepted that these services represented economic activity. The services were supplied to overseas companies and were therefore outside the scope of UK VAT under the place of supply rules. However, because they would have been taxable if supplied in the UK, they could support the recovery of related input VAT.  

The key question was therefore whether the VAT incurred by VOG had a sufficiently direct and immediate link with those taxable supplies. The Tribunal also considered VOG's alternative argument that it made only taxable supplies and should consequently be entitled to recover all of its input VAT. 

The Tribunal accepted that costs recharged to GdC, together with certain litigation and dispute-related costs connected with GdC’s business, had the required link with VOG’s taxable economic activity. VAT on these costs was therefore recoverable. 

However, the same conclusion did not follow for all expenditure. Certain legal and litigation costs could not be demonstrated to relate to GdC's business or another taxable supply and VAT recovery was therefore denied. 

Support provided without consideration

A particularly relevant aspect of the decision was VOG's support for other companies within the group. 

Although GdC was the group's only revenue-generating asset, VOG also incurred costs and used resources in supporting other subsidiaries. Those subsidiaries did not pay, and were not expected to pay, VOG for that support. VOG argued that all its activities formed part of its taxable business and that it was therefore entitled to recover all of its input VAT. The Tribunal concluded that these activities were non-economic and rejected VOG's argument that all of its input VAT was recoverable. 

This illustrates an important distinction for holding companies. The absence of exempt supplies does not necessarily mean that all VAT incurred is recoverable. A holding company may undertake both taxable economic activities and activities falling outside the scope of VAT. Its expenditure must therefore be considered by reference to the activities to which it relates.

The appeal was ultimately allowed in part, with the parties left to agree the appropriate apportionment. 

Established principles

The decision does not create a new framework for holding company VAT recovery. Instead, it reinforces principles developed through earlier holding company cases, including African Consolidated Resources plc and Norseman Gold plc, and the principles more recently summarised by the Supreme Court in Hotel La Tour.

These principles include:

• a holding company needs to undertake economic activity rather than simply acquire and hold shares
• where management or administrative services are provided, there should be a genuine supply for consideration
• the commercial arrangements should support the position that services are being supplied for consideration
• VAT recovery depends on the connection between the expenditure and taxable economic activity
• expenditure relating to non-economic activities may need to be excluded from recovery or appropriately apportioned.

Victoria Oil & Gas applies these established principles to a situation where a parent company charged some group companies for its services but provided support to others without remuneration. The case therefore provides a useful reminder that taxable management charges to one subsidiary do not, by themselves, establish that everything undertaken by the holding company forms part of its taxable economic activity.

The importance of evidence

The decision also demonstrates the importance of maintaining clear and contemporaneous evidence.

HMRC had repeatedly requested information during its enquiry and received incomplete or inconsistent explanations. The Tribunal concluded that HMRC's assessments nevertheless represented an honest and genuine attempt to arrive at a reasoned assessment using the information available and were therefore made to the best judgment. 

Importantly, however, this did not determine how much VAT was ultimately recoverable. The Tribunal separately considered the underlying expenditure and concluded that certain costs could be connected directly with VOG's taxable activities. 

This underlines why holding companies should consider individual categories of expenditure before applying a broader apportionment methodology. Legal fees, litigation costs, transaction expenditure and general corporate overheads may each have a different VAT treatment depending on why the costs were incurred and the activities they support.

Practical implications

The case provides a timely opportunity for groups to review whether the contractual arrangements, accounting treatment and activities undertaken by their holding companies tell a consistent story.

In particular, holding companies should consider whether:

• management services arrangements are documented when the services commence
• the services, recipient and basis of consideration are clearly identifiable
• invoicing reflects the underlying commercial arrangements
• there is evidence of the services actually provided to each group company
• the position of early-stage or non-revenue-generating subsidiaries has been specifically considered
• expenditure can be attributed directly to the activities it supports before any wider apportionment is undertaken
• appropriate supporting records, including contracts, invoices, time records, board papers and correspondence, are retained.

The existence of a management services agreement will not, by itself, establish an economic activity. Equally, the fact that a subsidiary cannot immediately pay an invoice will not necessarily prevent there being a taxable supply, provided there is a genuine agreement for identifiable services, an obligation to pay and commercial and documentary evidence supporting the arrangement.

As a First-tier Tribunal decision, the case does not create a binding precedent for other taxpayers or tribunals. It nevertheless provides a useful illustration of how the established principles may be applied in practice. 

Holding companies should review their arrangements before incurring high costs or submitting material VAT claims. Early action can help identify non-economic activities, support direct attribution of costs and reduce the risk of a challenge by HMRC.

To discuss this issue further, please contact your usual Crowe UK contact.