Holding companies ― is there a direct and immediate link?

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note examines how to identify if there is a ‘direct and immediate’ link between VAT on costs incurred by a holding company and its taxable business activities.

It is common for VAT to be incurred on a variety of costs associated with acquiring, holding or disposing of companies. However, VAT can only be recovered by a holding company where it has a direct and immediate link to the holding company’s taxable business activities.

For an overview of VAT and holding companies generally, see the Holding companies ― overview guidance note.

What is a direct and immediate link?

A holding company will only be entitled to recover VAT on costs where it can establish that there is a ‘direct and immediate link’ between the VAT it incurs on its costs and its taxable business activities.

Establishing whether such a direct link exists has been the subject of a lot of litigation at both UK and EU level, and a high degree of caution needs to be exercised.

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