You may not be aware that holding companies which are VAT registered are being investigated as part of a campaign by HM Revenue & Customs to ensure the holding company is entitled to be VAT registered.

Jeffreys Henry LLP, a leading provider of audit, tax and advisory services to AIM listed companies, is currently in the process of defending several AIM listed companies that have come under attack. In some cases, HM Revenue & Customs has raised VAT assessments to recover all VAT incurred by the holding company over the last four years.

HM Revenue & Customs has successfully challenged that holding companies cannot be VAT registered even when the initial VAT registration was fully approved and subsequent VAT inspections did not prompt any enquiry. This is a new initiative and the Tax Tribunal had heard two cases and, in both, upheld HMRC’s argument that the holding company was not eligible to recover any VAT because they did not meet the requirements of a company carrying out ‘business activities’ to enable them to recover VAT.

In view of the above it is vital that AIM listed companies appraise their current holding company arrangements to satisfy themselves that, in the event of a review by HMRC, their management and financial activities meet HMRC’s requirements for the recovery of VAT on related costs.

Even holding companies which undertake an active role in the management of their subsidiaries, have been successfully challenged and the VAT recovery on all costs has been disallowed.