Private equity company structure allowed full VAT recovery on setup costs! Melford Capital, VAT case

24th January 2020

The recent decision in the Melford Capital case (TC07514) concerns the VAT recovery of costs incurred by a general partner in respect of a real estate private equity investment structure.

Many private equity businesses will know the difficulties involved in achieving any significant VAT recovery of setup costs, let alone a full VAT recovery. However, this decision is unlikely to open the floodgates to VAT recovery claims just yet.

The decision itself is quite fact specific and these facts are unlikely to apply to all Private Equity funds (not to say they couldn’t be replicated to some extent). The ruling at the First Tier Tribunal does not create a binding decision and it is highly likely that HMRC will appeal. However, it is still worth reading the decision in detail for an analysis of the relevant rules, especially in respect of the way that economic activity is to be looked at when a partnership is a member of a VAT group.

Private Equity businesses now have a VAT First Tier Tribunal decision which highlights a potential structure that would allow for full VAT recovery of setup costs if the fact pattern could be matched. The general partner and manager of the SPVs would have to be members of a VAT group with the SPVs separately VAT registered.

It is certain that VAT in this area will continue to be a complex and contentious topic with HMRC.

For further details or if you would like to discuss your own VAT position and whether this case could have any application for your circumstances please speak with haysmacintyre VAT Senior Manager Kamlesh Chauhan on 020 7969 5584, or your usual haysmacintyre contact.

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