WHAT YOU NEED TO KNOW IN 2026
Professional fees aren’t small change – especially when you’re in the middle of a deal, a reorganisation or a fundraising round. And with VAT recovery still a hot topic after recent case law, it’s never been more important to know where you stand.
This article gives a high‑level look at VAT recovery on professional fees, rather than a technical deep dive. There’s been a steady stream of cases since BLP Group plc in 1995, but the recent Hotel La Tour Supreme Court decision – which echoes the same principles nearly 30 years on – is a reminder that VAT planning needs to happen early in any deal process.
So let’s get into it.
WHEN CAN VAT BE RECOVERED?
VAT on professional fees is generally recoverable when those costs relate to your taxable business activity. Common examples include:
- Commercial disputes
- Drafting or negotiating contracts
- Employee matters
- Buying business assets
If the work supports the day-to-day taxable trading activities of the business, reclaiming the VAT is often relatively straightforward.
WHEN THINGS GET TRICKIER: CORPORATE TRANSACTIONS
When you’re looking at deals, restructures, share sales or raising finance, this is where VAT recovery becomes less black-and-white.
As a rule of thumb:
- Bank loan-related fees are usually recoverable
- Costs linked to selling existing shares are generally not recoverable because share income is VAT-exempt
These differences can swing VAT recovery by thousands, so getting the structure right matters.
WHERE VAT RECOVERY IS AN ISSUE
VAT is generally recoverable by businesses where VAT costs on expenditure are linked to sales of goods and services that are taxable. For most businesses this means their VAT on costs directly associated with their activities and overhead costs are fully recoverable. For businesses that have exempt income, VAT recovery is often proportionally restricted.
Where businesses sell shares as part of a restructure, take over or for finance raising purposes, the income received from the sale of shares is usually exempt from VAT. As outlined at the outset of this article, over the last 30 years there have been VAT cases challenging whether VAT on professional fees associated with these events can be recovered like any other overhead head costs of the business or whether the costs directly relate to the sale of shares which would mean that the VAT is irrecoverable.
The latest case where these concepts have been discussed is the Hotel La Tour case where the initial VAT Tribunal accepted the taxpayer’s argument that the purpose of the share sale was to fund the hotel group’s taxable business activities and evidence showed that the funds had been used for this purpose. The Tribunal also held that the professional fees were effectively business overheads which meant that, in the context of a hotel business, the VAT incurred on fees related to selling the shares was recoverable.
THE HOTEL LA TOUR RULING: WHY EVERYONE’S TALKING ABOUT VAT AGAIN
The recent Supreme Court decision ultimately shut down this argument that the business relied on and previously was successful in lower VAT courts adding that to use the argument that the use of the funds being the main criteria for VAT recovery would be a recipe for confusion:
“We sold shares to fund future taxable activity – so the VAT on deal fees should be recoverable.”
The Court disagreed. The focus is back on direct and immediate link:
If the fees link directly to an exempt share sale, VAT recovery is severely restricted – regardless of how the money is used later.
HOW TO SUPPORT VAT RECOVERY ON DEAL COSTS
The good news is VAT recovery is still achievable – if you get the structure and evidence right.
You’re in a strong position where:
1. A HoldCo intends to make taxable supplies
Most commonly through genuine management services to the target.
To defend recovery, you need:
- A clear management services agreement
- The HoldCo to be invoiced directly
- VAT registration in place before costs arise
2. The acquisition strategically strengthens your taxable business
Even without a management agreement. Think:
- Buying a competitor
- Integrating a supplier or customer
- Expanding into related or complementary markets
- Achieving operational efficiencies
If the acquisition clearly supports your wider economic activity, the VAT position strengthens dramatically.
WHY CHOOSE COOPER PARRY FOR VAT RECOVERY?
Our VAT and Deals teams sit right in the sweet spot where tax detail meets commercial reality. We know the rulings, the pitfalls, the opportunities – and how to structure your transaction so VAT isn’t a value leak.
We can help you:
- Plan VAT recovery before costs hit
- Build robust evidence that will withstand HMRC scrutiny
- Maximise recovery on deal-related spend
- Navigate restructures, acquisitions and share sales with confidence
INTERESTED? GET IN TOUCH TODAY
Iain Masterton, VAT Director
Niall Chantrill, Corporate Finance Partner
