VAT treatment of share disposals and acquisition

By Tolley
Corporation_tax_img6

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • VAT treatment of share disposals and acquisition
  • Disposal of shares in a company
  • Holding companies
  • Acquiring shares in a business
  • Transactions between members of the same VAT group
  • Practical issues to consider with regarding to recovering VAT on deal costs

This note discusses the VAT treatment of share disposals and share acquisitions. It does not deal with the VAT treatment of the issue of shares and this topic is discussed in the VAT treatment of the issue of shares in a business guidance note.

Disposal of shares in a company

The relevant UK legislation states the following:

  • “the issue, transfer or receipt of, or any dealing with, any security or secondary security being:
    • shares, stocks, bonds, notes (other than promissory notes), debentures, debenture stock or shares in an oil royalty”

VATA 1994, s 26(2), Sch 9, Group 5, item 6

The sale or disposal of existing shares (ie not the issue of new shares) is exempt from VAT. As a result a business may not be able to recover all of the VAT incurred in respect of the issue of the shares in the business (subject to any partial exemption de minimis limit).

However, it should be noted that the sale of shares to a non-EU purchaser is deemed to be a specified supply and as a result any VAT incurred in respect of the sale of the shares to the non-EU customer can be recovered (subject to the normal rules). If the business sells shares to EU and non-EU businesses, it will be necessary for the business to devise a suitable method to apportion the input tax incurred in respect of the share disposal between the EU and non-EU customers in order to determine the amount of VAT that can be recovered.

Determining a fair and reasonable apportionment between EU and non-EU sales is complex and contentious. Care needs to be taken by the business and / or its adviser when calculating the recoverable VAT.

More on VAT on transactions and reorganisations: