Supreme Court decision in Hotel La Tour

Hotel La Tour sold its Birmingham hotel subsidiary in order to raise funds for a new hotel in Milton Keynes. Hotel La Tour claimed input VAT on professional service fees incurred on the share sale on the basis that these costs were associated with its hotel operating business, whereas HMRC disallowed the VAT deduction as the fees related to an exempt share sale. The First-tier Tribunal and Upper Tribunal held that as the share sale was a fundraising exercise, professional fees could be linked to Hotel La Tour’s overall taxable hotel business rather than the exempt share sale. The Court of Appeal held that the fees were directly and immediately linked to the exempt share sale, meaning that the input VAT was irrecoverable.

The Supreme Court has today published its long-awaited decision on that taxpayer’s appeal. Initial conclusions from the decision appear to be:

1. Hotel La Tour could not deduct its input tax because the facts were that the supplies were properly linked to an exempt share sale, not its taxable hotel business.
2. The judgment of Whipple LP in the Court of Appeal has been roundly endorsed by the Supreme Court: in particular, Whipple LJ’s analysis of the difficult CJEU judgment in Skatteverket v AB SKF (Case C-29/08) (SKF).
3. SKF and HMRC v Frank A Smart & Son Ltd (Scotland) [2019] UKSC 39 do not represent a principle that exempt share sales entered into for fundraising purposes should be looked through in the same way as supplies that are outside the scope of VAT.
4. However, the presence of an exempt share sale does not automatically mean that input tax is disallowed. Rather, one must “argue forwards” from an analysis of the connection between the inputs and the share sale to decide whether the inputs are directly and immediately linked to that sale or to the overall business.
5. Volkswagen Financial Services (UK) Ltd v HMRC (Case C-153/17) is straightforward authority for the proposition that not too much weight should be attached to the term “cost component” as it only requires that there is the necessary economic linkage between the input tax and output supply, rather than some mathematical markup.
6. Wellcome Trust Ltd v HMRC (Case C-155/94) is straightforward authority that some share sales are not economic activity: only ones which are (e.g.) part of a share dealing activity or adequately connected with relevant management services are (exempt) economic activity.
7. VAT grouping does not result in supplies within the VAT group being completely disregarded. Here, the intra-group supply of management services represented economic activities sufficient to make the relevant share sale exempt rather than a non-supply – so permitting the conclusion in [1].
8. The Supreme Court has been perfectly happy to weave together CJEU and UK analysis. Perhaps we have emerged into the post-Brexit sunlit uplands.

We expect to publish further analysis in early 2026 when we have considered the case more fully.

Authored by Rupert Shiers and Laura Hodgson.