Holding companies ― VAT status of activities

Produced by Tolley

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

  • Holding companies ― VAT status of activities
  • When is a holding company not in business?
  • Holding shares and receiving dividends
  • Disposals of shares
  • Defending subsidiaries from takeover
  • Making occasional loans
  • Providing services without consideration or for contingent consideration
  • When is a holding company in business?
  • Supplying management services
  • Making loans to subsidiaries
  • More...

Holding companies ― VAT status of activities

This guidance note examines how to determine the VAT status of a holding company’s activities. In particular, it looks at:

  1. when a holding company is or is not in business

  2. if a holding company is in business, whether its activities are exempt or taxable

The VAT status of activities is particularly important when deciding whether a holding company can recover VAT on costs. VAT recovery is only possible where the holding company has taxable business activities (amongst other factors).

For an overview of VAT and holding companies generally, see the Holding companies ― overview guidance note.

This is a complex and much litigated area of VAT law. For detailed discussion of the case law history surrounding the link between supplies and consideration, see De Voil Indirect Tax Service V3.103, and for business activities generally, see De Voil Indirect Tax Service V2.201B.

When is a holding company not in business?

Unless the holding company is included in a VAT group (see the Holding companies ― VAT grouping guidance note), it will need to have taxable business activities (or at least an intention to make taxable supplies) in order to be entitled to register VAT. Holding companies with no business activities will not be entitled to VAT register and will therefore be unable to recover any VAT on costs (for VAT registration generally, see the Overview ― registering for VAT guidance note).

A number of activities which are unlikely to be seen as business activities in their own right are considered in the paragraphs that follow.

Holding shares and receiving dividends

HMRC has stated that where a holding company simply holds shares in subsidiaries (from which It may receive dividends), this is a non-business investment activity for VAT purposes. Therefore, income received by way of dividend is outside the scope of VAT.

This is a well-established principle of European case law (which appears to remain relevant in the

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