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Dealmaking VAT reclaim black hole losing British businesses millions

The UK’s £200 billion dealmaking industry could be missing out on around £150m of VAT rebates.

The UK’s £200 billion dealmaking industry could be missing out on around £150m of VAT rebates for costs such as professional fees that are not being reclaimed, according to new analysis* into the UK’s M&A sector by Azets, the top ten accountancy and advisory firm.

M&A VAT costs that can qualify for reclaims include professional fees relating to acquisitions within taxable businesses, and certain sell-side costs relating to disposals. VAT reclaim rules can vary according to the corporate and share structures of the businesses involved – for example whether they are subsidiaries or employee-owned – and the rate of the qualifying claim can be either in full or in part.

Azets’ research found that the UK’s annual £200 billion M&A industry generates around £7.8 billion in professional fees and £1.5 billion of VAT on the fees. Based on an average of 10% of all deals failing to recover VAT on professional fees and other reclaimable costs, Azets calculates that British businesses are regularly losing more than £150m of recoverable VAT.

“Dealmaking in the UK is highly complex and subject to extensive due diligence, regulatory controls and detailed scrutiny by HMRC so it is unsurprising that VAT reclaims on professional fees and other less obvious qualifying costs can sometimes be overlooked, particularly when the focus is securing the deal often against a tight timetable,” said Andrew Hopkins, Tax Partner with Azets.

“We would encourage both buyers and sellers to prepare a detailed VAT plan so that qualifying VAT costs are claimed in full. Recovering VAT can be critical to cash flow, particular after an acquisition when the focus is on the integration of the new business. Exiting shareholders can equally lose focus on the fine VAT detail of the deal after the funds have transferred.”

Andrew Hopkins added: “We recommend that advice is sought before the professional fees are incurred. However, even after the deal has concluded, business owners have up to four years in which to submit a claim to recover VAT on qualifying costs. We recently helped one client recover £250k of qualifying VAT costs that had been overlooked, so it is always worthwhile undertaking a post-deal VAT audit.”

Azets has prepared a short VAT reclaim ready reckoner for businesses and advisors wishing to review recent transactions to ensure they have claimed for all relevant VAT costs.

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