Getting VAT Back on Issuing Shares
If you've issued shares in the last three years, and not been able to recover all the VAT on your costs, then you need to speak to a VAT adviser today. A recent European Court of Justice (ECJ) ruling may mean you can now claim your unrecovered VAT.When someone provides goods or services that come within the scope of VAT, this is known as making a supply. The supply may be subject to VAT at the standard rate, the reduced rate, the zero rate, or it may be exempt from VAT. Anything that doesn't come within the scope of VAT is not a supply.
The supply of shares is exempt from VAT and therefore the VAT on associated costs (such as legal fees) is generally not recoverable. When shares are traded, this is treated as an exempt supply. However, debate has been raging for some time regarding the issue of shares. Trading shares is clearly a supply, but when shares are initially issued to investors, is this actually a supply?
The ECJ concluded recently (in the case of a German firm, Kretztechnik ) that the issue of shares is not a supply. This sweeps away years of established VAT practice. Many companies have suffered huge irrecoverable VAT costs relating to share issues. If the issue of shares is not a supply, then the VAT on associated costs relates not to an exempt supply (as previously maintained by Customs) but to the business as a whole. If the business has no other exempt supplies, then all of the VAT on the deal costs should be recoverable.
In the light of this, Customs now accept that the first time issue of shares by a public limited company 'in circumstances that are the same as those in Kretztechnik's case' is not a supply and the VAT on associated costs may be recoverable. However, they are taking legal advice regarding how far this judgement applies to other share issue situations, such as mergers, demergers and other restructuring. Any claims for VAT that are made for circumstances that differ from the Kretztechnik case will be acknowledged, but not processed until that advice has been received by Customs.
If you have issued shares in a situation that was not a first time issue of shares in a plc, it is still worth considering submitting a claim now if the costs were incurred nearly three years ago. That way, you would ensure that you are inside the time limit for making a claim.
For more information on VAT and issuing shares, contact Steve Chamberlain on 01865 261100 or email schamberlain@critchleys.co.uk