Direct link between consideration and supply

In Imprimatur Capital Holdings Ltd T vs HMRC [2021] TC08006, the First Tier Tribunal (FTT) concluded that only the services to third-party clients were made for consideration, therefore amounted to an economic activity and entitled to input tax recovery on those services.

This is a complex case about the right to an input tax deduction and whether there is a direct link between consideration and supply.

• Imprimatur Capital has the following activities:
  • It invested in portfolio companies that had been spun out of universities or research institutions. It held a minority interest.
  • It provided services to its portfolio companies, such as the provision of ‘management services’.
    • It also charged fees to group companies.
    • It charged for services to third-party clients such as advising a university on technology transfers.

The fees charged to portfolio companies were deferred until the portfolio company could afford to pay for the services.

• This broke the direct link and meant the services to portfolio companies were not provided for consideration.
• Fees to group companies were unrelated to the value or cost of the services and were set at what the group company could afford and deferred until it could afford to pay.
• What was actually paid was much less than the agreed fee. So again, that meant the services were not made for consideration.

In 2016 HMRC disallowed input tax deducted of £102,205 for the periods June 2012 to June 2015. A review by HMRC in 2017 upholding their 2016 decisions and to disallow input tax deducted of £82,609 for the periods December 2015 to March 2017.

Imprimatur Capital appealed against a review to the FTT.

The FTT concluded that:

• Only the services to third-party clients were made for consideration and therefore amounted to an economic activity with the right to deduct input VAT.
• The provision of services to portfolio companies and to group companies were not taxable supplies. It follows that input tax was not deductible.

Useful guides on this topic

Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

VAT: Costs sharing exemption
Charities, universities, colleges and, for the time being, housing associations, can share costs without triggering a VAT charge by forming a Cost Sharing Group (CSG) under the cost-sharing exemption.

Close Investment Holding Companies
What is a Close Investment Holding Companies (CIHC)? A CIHC is a special type of company for tax purposes.

External Link

Imprimatur Capital Holdings Ltd v HMRC [2021] TC 08006