Deduction of VAT following business transfer

This decision involves NT Advisors, but on this occasion in relation to its own tax affairs, rather than the tax avoidance schemes it promoted to its clients.

The case concerns the recovery of input tax on barristers fees in the defence of tax schemes being litigated in UK courts. The contentious issues in this case resulted from the transfer of the appellants business before the input tax was incurred.

The appellant did not apply to retain the transferors VAT number, leaving behind approximately £1m in unpaid VAT. HMRC also claimed there was little chance that the tax schemes would succeed.

For NT to lose, the judge by his own admission would have applied a ‘hyper-literal’ interpretation of the laws on VAT deduction. This could have unfairly disadvantaged other taxpayers in the future. It’s good to see that NT’s chequered history did not produce a bad result in this case.

In brief, the judge held that the input tax would have been deductible by the transferor; that the business purchase agreement transferred the entitlement to future income and that the costs of running that business should be deductible by the transferee. This would clearly include the barristers fees.