• Date

    15 May 2024
  • Category

    VAT & Indirect Tax

Dealmaking VAT reclaim black hole losing British businesses millions

M&A VAT costs that can qualify for reclaims include professional fees relating to acquisitions within taxable businesses, and certain sell-side costs relating to disposals. VAT reclaim rules can vary according to the corporate and share structures of the businesses involved – for example whether they are subsidiaries or employee-owned – and the rate of the qualifying claim can be either in full or in part.

Our research found that the UK’s annual £200 billion M&A industry generates around £7.8 billion in professional fees and £1.5 billion of VAT on the fees. Based on an average of 10% of all deals failing to recover VAT on professional fees and other reclaimable costs, we calculate that British businesses could be regularly losing more than £150m of recoverable VAT.

Dealmaking in the UK is highly complex and subject to extensive due diligence, regulatory controls and detailed scrutiny by HMRC so it is unsurprising that VAT reclaims on professional fees and other less obvious qualifying costs can sometimes be overlooked, particularly when the focus is securing the deal often against a tight timetable.

We would encourage both buyers and sellers to prepare a detailed VAT plan so that qualifying VAT costs are claimed in full. Recovering VAT can be critical to cash flow, particularly after an acquisition when the focus is on the integration of the new business. Exiting shareholders can equally lose focus on the finer VAT details of the deal after the funds have transferred.

We recommend that advice is sought before the professional fees are incurred. However, even after the deal has concluded, business owners have up to four years in which to submit a claim to recover VAT on qualifying costs. As an example, we recently helped one client recover £250k of qualifying VAT costs that had been overlooked, so it is always worthwhile undertaking a post-deal VAT audit.

 

We are here to help

We have prepared a short VAT reclaim ready reckoner for businesses and advisors wishing to review recent transactions to ensure they have claimed for all relevant VAT costs. If you have recently been involved in a deal, or are planning/currently going through one, and would like to check whether all corresponding VAT has been claimed/taken into account, please get in touch with a member of our specialist VAT team or your usual Azets advisor.

 

*Data taken from the Experian MarketIQ M&A Review: https://www.experian.co.uk/content/dam/marketing/uki/uk/en/pdf/MarketIQ-Report-FY-2023.pdf

About the author

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Martin Keenan

Senior Manager Glasgow
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