Financial adviser warns businesses should protect themselves now against proposed EU law

Tech companies face unwanted VAT bill

Technology businesses face an unwelcome VAT bill if new European Commission proposals are implemented, a financial adviser has warned.

Current UK policy theoretically allows passive holding companies to join a VAT group registration and recover tax on costs that would otherwise not be recoverable. Under the EC’s proposal, however, these non-trading companies would be excluded from registering or joining a VAT group, meaning that any VAT it incurred would be an additional cost.

"This change will increase real costs for many businesses in the sector. Technology companies incur substantial VAT costs when they seek new investment or funding. Technology companies will be hit by this rule as many use passive holding companies as investment vehicles which are kept separate from the trading business," Niki Dixon, head of technology at financial and business advisers Grant Thornton, said.

"Currently these holding companies are brought into VAT groups so they can recover the VAT on costs incurred, such as fees for share issues. If the EC proposal is enforced, it will increase the real cost of raising money at a time when every penny counts."

Dixon advised that businesses should consider now how the change would affect their VAT recoveries and take steps to protect themselves.

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