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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, considers the VAT position of corporate finance services.Corporate finance services may take a variety of forms:

• raising capital

• share placement

• acquisition/merger

Determining the liability

In determining the liability, the essential question to address is whether the deal concerned involves the supply of an intermediary service falling within Item 7 of Group 5 of the VAT Act 1994. An intermediary service is one which results in the supply of any transaction in Group 5 item 6 of the VAT Act 1994.

In the course of a corporate finance transaction involving a supply of securities, a number of different parties participate in the supply of services to the principals to the securities deal. The legislation provides VAT exemption for ‘intermediary services’ in the supply of securities. However, this exemption will not apply to all the parties providing advice to the vendor.

Financing services

Corporate financing is often a two-stage process. First the sponsor seeks information from a variety of professional sources, and, having obtained it, prepares a prospectus. Services performed in this first stage, such as reporting accountants, are generally taxable. Services performed during the second stage, the actual transaction in securities, may qualify for exemption.

Exemption applies only to the services provided by the party, or possibly parties, if more than one person is engaged to act as co-ordinator, who actually negotiates or co-ordinates all of the components of the transaction and concludes it. Typically this might include:

(a) bringing together sellers/issuers and purchasers/investors;

(b) carrying out/coordinating the necessary negotiations essential to the conclusion of the whole deal;

(c) instructing/organising and co-ordinating the work of other parties involved, such as lawyers and accountants;

(d) carrying out the necessary consultations with appropriate regulatory authorities; and

(e) acting as the central point of contact and execution between the party intending to effect a transaction in securities and their other advisers.

If you are providing specialist services, for example as legal advisers or document printers, your specialist services are taxable, even if supplied in connection with the second stage.

If you provide services to a company to enable it to defend against a hostile takeover bid, your services are wholly taxable if the defence does not involve intermediary services for the issue of shares or for raising capital as part of the defence.

Not covered

The exemption for intermediary services does not cover:

professional services provided by accountants and lawyers which are sometimes supplied in connection with the issue of securities or sale of securities, and which do not make the bridge between the principals; or services of preparing and issuing advice to investors to reject or accept a take-over bid or offer to purchase.

Such services are taxable, because they do not possess the characteristics of an intermediary.

July 2005

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com


VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc