Recovery of VAT on Deal Fees: Airtours is Denied a Deduction for VAT Paid on Fees Charged by Advisors on its Restructuring

Sullivan & Cromwell LLP - 3 September 2014

Airtours Holidays Transport Limited has been denied recovery of VAT on fees it paid to PricewaterhouseCoopers LLP for a review of Airtours’ financial position in connection with its possible restructuring.

The Court of Appeal found that PwC was under no contractual obligation to provide services to Airtours, even though Airtours was a party to the engagement letter, was entitled to receive a copy of PwC’s report, and was responsible for paying PwC’s fees.

The case is significant for UK-based companies seeking to recover input VAT in respect of fees and other overheads. It shows that a taxpayer will not be able to recover input VAT unless the contractual documentation makes clear that the relevant VATable supply is made to it. It is not enough that the supply may involve some level of “benefit” to the taxpayer; and/or that the taxpayer is responsible for paying for the supply.