Input Tax Deduction - Mutual Beneficiaries

February 2017


HMRC ruled that tax advice given to a company (which helped the sole director to reduce his income tax and NIC liabilities) was not obtained for the purpose of its business because it was for the financial benefit of the director. Input tax incurred on the fees was therefore not deductible.

The Tribunal disagreed with HMRC, holding that the advice allowed the company to reduce its PAYE liability albeit that the ultimate beneficiary was the director, so that the company was entitled to deduct the input tax.

In reaching its decision the Tribunal had regard to a famous win by our very own Nigel Gibbon in July last year in the appeal of Praesto Consulting UK Limited v HMRC [2016] UKFTT 495 (TC) where input tax incurred on legal fees which were supplied for the defence of legal proceedings brought against the director was held to be deductible by the company.

 The moral of this story is that if either Doran Bros or Praesto had ensured that the letters of engagement from their advisors specified that the supplies were being made specifically to the company, and why, then HMRC’s arguments would not have got out of the blocks.

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