In a recent case (Airtours Holidays Transport Ltd v CRC, Supreme Court, 11 May 2016) Airtours had paid for services provided by PwC of financial reports that would be used by financial institutions to assess lending to Airtours.  Airtours paid PwC fees which included VAT, and went on to claim the VAT as input tax.  HMRC disallowed the claim for input tax on the basis that the service (reports) provided by PwC was for the financial institutions not for Airtours.  HMRC have now won this case in the Supreme Court.

This reminds us that VAT is actually based on supplies of goods and services, not financial transactions or payments.  When considering whether you can reclaim the VAT on any costs (i.e. make an input tax claim) one factor is that the costs must relate to goods or services supplied to you, not to a third party.  An example of this that crops up from time to time is that VAT input tax cannot be claimed if the business pays for legal fees on behalf of a director.

David Wilsdon