THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v HOTEL LA TOUR LTD [2023] UKUT 00178 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Zacaroli,Judge Guy Brannan |
| Subject Matter | 24 July 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 24 July 2023 |
Neutral Citation: [2023] UKUT 00178 (TCC) Case Number: UT/2022/000031
UPPER TRIBUNAL
(Tax and Chancery Chamber) The Rolls Building, London
VAT – sale of shares – proceeds of sale used to fund taxable activities – input tax incurred on
sale of shares – whether a direct and immediate link to the taxable activities – yes – appeal
dismissed
Heard on: 13 June 2023
Judgment date: 24 July 2023
Before
MR JUSTICE ZACAROLI
JUDGE GUY BRANNAN
Between
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Appellants
and
HOTEL LA TOUR LTD Respondent
Representation:
For the Appellants: Isabel McArdle, Counsel, instructed by the General Counsel and
Solicitor to His Majesty’s Revenue and Customs
For the Respondent: Michael Firth, Counsel.
DECISION
INTRODUCTION
1. The Appellants (“HMRC”) appeal against a decision of the First-tier Tribunal (“FTT”)
(Judge Richard Chapman QC and Ms Gill Hunter) issued on 3 December 2021 (“the Decision”)
allowing the appeal of Hotel La Tour Ltd (“HLT”) against a decision of HMRC dated 26 June
2018 and a corresponding assessment. HMRC’s decision and assessment were issued on the
basis that HLT was not entitled to an input deduction in respect of certain services supplied to
HLT because, in HMRC’s view, they were directly and immediately linked to HLT’s exempt
supplies, viz the sale of shares in its subsidiary, Hotel La Tour Birmingham Limited (“HLTB”).
2. HLT, however, maintains that the relevant services were directly and immediately linked
to HLT’s taxable supplies because the shares in HLTB were sold in order to raise funds for the
building of a new hotel in Milton Keynes. HLT further argues that because HLT and HLTB
were in the same VAT group, the sale of the shares in HLTB is to be treated as outside the
scope of VAT rather than as an exempt supply.
3. The amount of VAT at stake is £76,822.
4. HMRC appeal to this Tribunal with the consent of the FTT.
5. For the reasons given later in this decision, we dismiss HMRC’s appeal.
FACTUAL BACKGROUND
6. The relevant facts, which were set out in [3]-[13] of the Decision, were not in dispute
before the FTT and are summarised below. References in square brackets are references to the
relevant paragraphs of the Decision, unless the context otherwise indicates. References to the
CJEU or to “the Court” include references to the ECJ.
7. HLT was a holding company and owned the entire share capital of HLTB. HLTB and
HLT were members of a VAT group of which HLT was the representative member. HLTB
owned and operated a luxury hotel in Birmingham. HLT provided HLTB with management
services, which included the provision of key personnel, such as the general manager of the
hotel.
8. HLT also owned certain intellectual property, including the “Hotel La Tour” name, which
HLTB was permitted to use.
9. In 2015, HLT decided to construct a new hotel in Milton Keynes which was anticipated
to cost approximately £34.5 million. In order to finance this development, it decided to sell
HLTB and to borrow the shortfall from a bank. It was considered that HLTB’s business had
reached the stage where it could grow no further.
10. HLT sought the highest price possible for the shares in HLTB and it was clear that the
proceeds of sale were to be used to fund the development of the Milton Keynes hotel.
11. On 17 May 2017, HLT agreed heads of terms with a purchaser (“the Purchaser”) for the
purchase of the shares in HLTB. The sale was completed by a share purchase agreement dated
21 July 2017 (“the SPA”). The SPA provided:
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