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HMRC has issued long-awaited new guidance in relation to VAT policy on holding companies.

Revenue and Customs ('R&C') Brief 32 (2014) confirms how the following VAT issues for holding companies should be treated:

  • when a shareholding is used as part of an economic activity;
  • when input tax (VAT) may be recoverable by a holding company;
  • the effect of a holding company joining a VAT group; and
  • how to treat mixed economic and non-economic activities.

We provide a link to the relevant brief here: Brief 32

This has been long awaited guidance following the Court of Appeal judgement in the case of British Airport Authority ('BAA') of 2013.

In the past, a holding company within a VAT group was treated the same as any other VAT group member and input tax (VAT) on the costs incurred by the holding company could be recoverable in accordance with the VAT group's overall VAT recovery position.

Now, HMRC's guidance is informing that input tax (VAT) is only recoverable by a holding company when it is incurred in the course of an economic activity and, crucially from the BAA case, there is a direct and immediate link to onward taxable supplies. That is, a passive holding company can no longer rely on solely of its membership within a VAT group to recover the input tax (VAT) incurred.

HMRC do note that its R&C Brief is not a change to its policy, however, businesses operating a structure which includes a holding company should consider the impact, for them, of this newly published guidance.

Who is potentially affected?

  • Businesses and other organisations who have a holding company included in their VAT group which does not have an economic activity, but has already recovered input tax (VAT) it has incurred.

How can VAT Services (Scotland) Ltd help you?

  • We can assist businesses and other organisations by reviewing its VAT recovery position retrospectively for potential risk of challenge and VAT assessment, including penalties, from HMRC and how to protect against this. This includes reviewing management services agreements to ensure that they have been implemented properly; and
  • Businesses and organisations who are planning on future structures involving a holding company by ensuring how to manage the potential risk of challenge from HMRC.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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