Holding companies ― VAT status of activities

Produced by Tolley
Holding companies ― VAT status of activities

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...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

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 V2.202.

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 (also referred to as ‘economic activities’) 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 r

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