Mergers, acquisitions and disposals

By Tolley

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

  • Mergers, acquisitions and disposals
  • Share transfers
  • Share acquisitions
  • VAT and holding companies post BAA
  • Share issues
  • Selling part of a VAT group
  • Share transactions - practical considerations
  • Loan / finance agreements

This guidance note provides an overview of the main points that need to be considered by a business, or its adviser, when they are involved in any business restructuring. This note should be read in conjunction with the Mergers, acquisitions and disposals - other considerations and Overview of a transfer of a business as a going concern guidance notes.

De Voil Indirect Tax Service V3.461A (subscription sensitive)
Share transfers

The transfer of existing shares to another party is either exempt or outside the scope of UK VAT (with or without the right to deduct associated input tax). See ‘VAT on M & A Transactions’ by Clive Jones in Tax Journal, Issue 1030, 21 (24 May 2010) (subscription sensitive).

The seller will not be able to recover input VAT incurred on costs associated with the share transfer, including VAT incurred on professional fees unless the shares are sold in the course of the seller's business.

Transfers by UK holding companies

Holding shares simply as an investment, receiving dividends and disposing of the shares does not amount to a business activity, and therefore if this is the only activity undertaken by a passive holding company then they cannot register for VAT. However, HMRC has historically allowed a passive holding company to be included in a VAT group with trading subsidiaries in order for the company recover input tax based on the business activities undertaken by other group members. However, HMRC has amended its policy in this regard and holding companies can now only recover VAT if it can be linked to a taxable business activity. Please see the VAT and holding companies guidance note for details of HMRC’s current policy.

Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen (C–60/90) ; Wellcome Trust Ltd v C & E Commrs Case C-155/94 

If a holding

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