The Commissioners for HMRC v Hotel La Tour Ltd
[2023] UKUT 178 (TCC)
Commissioners for HMRC v Hotel La Tour Ltd
21 May 2024
[2024] EWCA Civ 564
Court of Appeal
A company sold shares to get money for a new hotel. It tried to deduct taxes paid on services used to sell the shares. The court said no, because the share sale was a tax-exempt transaction, even if the purpose was to fund a business that paid taxes.
Key Facts
- •Hotel La Tour Ltd (HLT) sold shares in its subsidiary, Hotel La Tour Birmingham Ltd (HLTB), to fund a new hotel development.
- •HLT and HLTB were in a VAT group, with HLT as the representative member.
- •HLT incurred input VAT on professional services related to the share sale.
- •HMRC denied HLT's claim for input VAT deduction.
- •The First-tier Tribunal (FTT) and Upper Tribunal (UT) allowed the deduction.
- •HMRC appealed to the Court of Appeal.
Legal Principles
Input tax deduction requires a direct and immediate link between the goods/services and taxable transactions.
First and Sixth Council Directives, Principal VAT Directive (PVD), Value Added Tax Act 1994
Input tax is not deductible if directly linked to an exempt supply, even if the ultimate purpose is taxable activity.
Case C-4/94 BLP Group plc v Customs and Excise Commissioners
The direct and immediate link test is fact-specific and considers all circumstances.
Case C-98/98 Midland Bank plc v Customs and Excise Commissioners
If a transaction is outside the scope of VAT, input tax on related services may be linked to the overall taxable activity.
Case C-408/98 Abbey National plc v Customs and Excise Commissioners, Case C-465/03 Kretztechnik AG v Finanzamt Linz
Fiscal neutrality requires similar transactions to be treated similarly, regardless of ultimate purpose.
Case C-29/08 Skatteverket v AB SKF
In fundraising transactions, the initial transaction may be disregarded when assessing the direct and immediate link, unless input costs were part of the share price.
[2019] UKSC 39 Frank A Smart & Son Ltd v Revenue and Customs Commissioners
VAT grouping does not disregard economic activity; it simplifies VAT accounting.
Value Added Tax Act 1994, s 43; Customs and Excise Commissioners v Thorn Materials Supply Ltd; Intelligent Managed Services Ltd v Revenue and Customs Commissioners
Outcomes
Court of Appeal allowed HMRC's appeal.
The input VAT on professional services was directly linked to the exempt share sale, not HLT's overall taxable activity. The existence of the VAT group did not alter this conclusion.
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