VAT Question of the Week

blog-publish-date

27 May 2016

blog-read-duration

Q. My client and his son are in partnership running a farm. My client’s son has recently instigated divorce proceedings against his wife and the solicitor has informed him that she is entitled to a share of the farm assets, which, consequently we have had to get valued. The business has paid for the valuation to be carried out and the associated legal costs so will it be possible to recover the VAT incurred through the partnership? A. When determining whether input tax is recoverable, it is not sufficient that the business has merely funded the expenditure; it must also have been incurred for the purpose of the business. There is no absolute definition of “business purpose”, nor would one be totally appropriate given the wide variety of circumstances in which businesses operate. However, it is essential to establish whether or not there is a clear connection between the actual or intended use of the goods or services and the activities of the business. In particular, you need to consider whether the expenditure relates directly to the function and carrying-on of the business or merely provides an incidental benefit to it. In your client’s case although the divorce proceedings have impacted on the business, the costs incurred have not been incurred for the direct purpose of the business and so the VAT will not be deductible. The complexity of input tax recovery has been at the forefront of the VAT world this week as the Supreme Court delivered its judgement in the case of Airtours Holidays Transport Limited ruling 3-2 in favour of HMRC. One of the key points to come out of this decision is that being obliged to pay for services is not necessarily sufficient to reclaim the VAT incurred. Are you unsure about whether any of your clients are entitled to recover input tax? As HMRC continue to impose penalties on those who don’t comply why not contact the VAT Advice on 0844 561 8101 to discuss the issue. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT. Or, learn more about our tax consultancy services.

Free to Download Employer Resources

  • Social Media Policy Template

    FREE DOWNLOAD

    Social Media Policy Template

    Read more
  • Sample Mental Health Policy

    FREE DOWNLOAD

    Sample Mental Health Policy

    Read more
  • Disciplinary Letter Template

    FREE DOWNLOAD

    Disciplinary Letter Template

    Read more
  • 10 Tips About Your Workforce and Bank Holidays

    BLOG

    10 Tips About Your Workforce and Bank...

    Do you have employees who work over bank holidays?  Public holidays raise all so...

    Read more
  • Top Five Things to Remember When Recruiting

    BLOG

    Top Five Things to Remember When Recr...

    Although finding the appropriate person for a role is challenging, getting thing...

    Read more
  • EU Ruling Forces UK Bosses to Record Staff Work Hours

    BLOG

    EU Ruling Forces UK Bosses to Record ...

    The European Court of Justice has ruled that bosses must have a system in place ...

    Read more
  • Numark

    CASE STUDY

    Numark

    Numark serve as a virtual head office for independent pharmacies on the high str...

    Read more
  • Gilmour Quinn

    CASE STUDY

    Gilmour Quinn

    Gilmour Quinn Financial Planning Ltd is, as the name suggests, a small financial...

    Read more
  • Wardman Brown

    CASE STUDY

    Wardman Brown

    "I would say it has has a noticeable impact, in particular it has improved the H

    Read more

Ready to focus on what you do best?

Get your free consultation and speak to an expert today.