Rigid restrictions on recovering VAT on costs incurred during share sales were established over 30 years ago in the landmark European Court of Justice (ECJ) case BLP Group plc v Commissioners of Customs & Excise (Case C4/94) (BLP). That so-called “BLP barrier” was called into question in recent years by victories for HLT at the First-tier Tribunal and the Upper Tribunal.

However, as Ed Saltmarsh, Technical Manager – VAT, ICAEW, explains in an article written for TAXline, defeats for HLT at the Court of Appeal and now the Supreme Court (HMRC v Hotel La Tour Ltd [2025] UKSC 46) have restored the status quo. The Supreme Court judgement “effectively ends the argument, for now, that selling shares to raise cash for the business converts VAT on deal fees into recoverable VAT on overheads”, says Saltmarsh.  

The HLT case

HLTL, a holding company, owned the entire share capital of Hotel La Tour Birmingham Ltd. In 2017, HLTL decided to sell this subsidiary. The purpose of the sale was not to exit the market or distribute profits to shareholders. Instead, the proceeds were entirely earmarked to finance the development of a new luxury hotel in Milton Keynes. HLTL engaged various professionals, including lawyers, accountants and marketing agents, to facilitate the share sale, incurring substantial VAT on their fees.

HLT sought to recover this VAT, arguing that, because the funds were used exclusively to support the taxable activity of the new Milton Keynes hotel, the costs were general overheads of the business. HMRC rejected this, citing the decision in BLP. HMRC's view was simple: the costs had a "direct and immediate link" to the exempt sale of shares by HLT, and the chain of attribution stopped there.

Defeat for HLTL

As the parties couldn’t agree, the case made its way through the courts, with mixed results. In a decision released in December 2025, the Supreme Court held that the "direct and immediate link" test is the primary method for determining VAT deductibility, and emphasised that this link is objective, not subjective. HLT's subjective intention was to fund a new hotel. However, the objective reality was that the professional services were consumed to affect the sale of the shares. Without those services, the sale of the shares could not have proceeded as it did. Therefore, there was a direct and immediate link between the input services and the exempt sale of the shares. 

Practical implications

For Saltmarsh, following the HLTL saga “the BLP barrier remains as high as ever”. “However commercially necessary a share sale may be”, he explains, “the purpose behind the sale cannot override the exempt nature of the transaction”. This means that, for most businesses, “VAT incurred on fees for disposing of subsidiaries through the sale of the subsidiary’s shares will remain an absolute cost”.

It is important that businesses looking to raise capital are aware of this and that they take it into account at an early stage. “Careful structuring and early VAT advice are essential before assuming any recovery position”, warns Saltmarsh. 

Saltmarsh’s TAXline article also includes guidance for active holding companies and for companies that made protective claims pending the decision of the Supreme Court.

A better approach? 

Stephen Dale, Chair of the Tax Faculty’s VAT and Duties Technical Committee, is reluctant to accept that the Supreme Court decision draws a line under the matter, and points to two French cases which he says “show a more economic approach” is possible to the question of VAT recovery on the costs related to share sales. In both instances, fees paid by a holding company in relation to the sale of shares were found to be part of the company’s overheads with the result that the VAT on the costs of disposal of the shares was recoverable.