Case: Holding company allowed only partial recovery of input tax

In Victoria Oil & Gas plc TC 09998, the First-tier Tribunal partially allowed a holding company’s appeal against HMRC’s disallowance of 88% of its input tax. VOG, a UK holding company with subsidiaries holding oil and gas licences in Russia, Kazakhstan and Cameroon, had reclaimed input tax on every return for three years but declared no output tax. HMRC’s enquiry concluded that only about 12% of VOG’s costs related to taxable management and administration supplies made to its Cameroon subsidiary, and disallowed the remainder.

The Tribunal rejected VOG’s argument that the assessment was not made to best judgment under VATA 1994, s. 73. It found the officer had fairly considered the available information and used a rational apportionment based on staff time in the absence of better evidence. On quantum, the FTT accepted that some costs, particularly those directly recharged to the Cameroon subsidiary (including certain legal fees), had a direct and immediate link to taxable supplies and were recoverable. However, costs relating to a Kazakhstan licence dispute and general London office overheads were treated as supporting the holding company’s overall functions and other subsidiaries. VOG failed to show these were wholly attributable to taxable supplies, so the 12% recovery rate for those categories was upheld.

The case is a reminder that holding companies must properly document inter‑company services and the link between costs and taxable supplies, ideally through clear service agreements and consistent explanations to HMRC. Poor records and mixed messages can lead to significant input tax disallowances and costly litigation, even where partial recovery is ultimately allowed.