Weekly VAT News

Visual Investments International Ltd: input tax on legal fees – FTT

Visual Investments International Ltd (Visual) claimed input tax of over £54,000 for VAT periods from 2018 to 2021 for legal fees incurred on a commercial dispute. HMRC considered that Visual was not entitled to claim the input tax, on the basis that the legal services were not directly and immediately linked to Visual’s taxable supplies, and were not solely received by Visual. The commercial dispute related to the enforcement of an agreement to transfer shares in two companies to a joint venture vehicle, which was to be 39% owned by a company majority-owned by Visual. The commercial dispute was ultimately settled, following litigation. The First-tier Tribunal has held that Visual was not entitled to recover input tax on the legal fees. Visual argued that the litigation was undertaken to protect Visual’s business interests, which included providing management consultancy services, and that, accordingly, there was a direct and immediate link between the fees incurred and the making of taxable supplies of consulting services. However, the FTT found that the costs were incurred to force the transfer of shares to the joint venture, which were ultimately to be sold at a profit. There was no direct and immediate link with potential taxable supplies of management consultancy. Although not necessary given this conclusion, the FTT considered briefly whether Visual was the sole recipient of the legal services. The FTT concluded that the services were being supplied to all three claimants in the commercial litigation. Accordingly, if it had been necessary for the FTT to make a decision on the issue, it would have found that Visual would have been entitled to an input tax deduction of one-third of the VAT. However, given the FTT’s decision on the first point, Visual’s appeal was dismissed. (Contact: Andrew Clarke)

Retained EU law – role of the courts

Section 6 of the Retained EU Law (Revocation and Reform) Act 2023 (REULA) amends section 6 of the European Union (Withdrawal) Act 2018, regarding the role of the UK courts. This amendment was to come into force on 1 October 2024 in accordance with the Retained EU Law (Revocation and Reform) Act 2023 (Commencement No 2 and Saving Provisions) Regulations). However, these Regulations have now been revoked. Accordingly, the amendments did not come into force on 1 October 2024, and the extant provisions of section 6 remain in force. The REULA amendment was intended to provide UK courts with greater freedom to depart from assimilated EU case law (previously retained EU case law). Accordingly, it remains to be seen what the implications of the revocation may be for the ongoing interpretation of UK law. (Contact: Judith Lesar)

EU Deforestation Regulation – proposal to delay implementation

The EU Deforestation Regulation (EUDR) aims to ensure that key goods placed on the EU market will not contribute to deforestation. The EUDR prohibits seven key commodities (cattle, cocoa, coffee, palm oil, rubber, soya, and wood) and products derived from those key commodities (such as beef, chocolate, and furniture) from being placed on or exported from the EU market unless certain deforestation-free requirements are met. The EUDR, which includes new compliance filing requirements, was due to come into effect for large businesses on 30 December 2024. However, the European Commission has proposed a delay of 12 months to the implementation, to allow authorities and businesses more time to prepare. If approved by the European Council and Parliament, the requirements will come into effect for large businesses on 30 December 2025, and for micro- and small enterprises from 30 June 2026. The Commission also published further guidance documents and an international cooperation framework. (Contact: Eleanor Caine)