• VAT case of Tower Resources - huge win for the Natural Resources sector
Industry issue:

VAT case of Tower Resources - huge win for the Natural Resources sector

29 August 2019

In a recent decision of Tower Resources, the First-tier Tribunal has ruled that a holding company operating in the Natural Resources (NR) sector should be entitled to VAT refunds. This is a significant win for the NR industry. Affected businesses should now review their fact pattern and make claims for VAT refunds (as necessary).


Over the years, HMRC have carried out a targeted campaign to claw back VAT refunds from holding companies in the NR sector. Their rationale is that such companies are often not engaged in economic activity and therefore, should not be VAT registered in the first place – let alone being entitled to input tax recoveries and VAT refunds. The courts, so far, have overwhelmingly supported HMRC’s view – as a result of which, there have been a flurry of VAT assessments raised on holding companies. 

However, the tide could be changing. This is the first case that gives total victory to the taxpayer. 

The Tower Resources case

The Tribunal found that Tower Resources provided services to the subsidiaries and charged the sums to the intercompany loan account. There was a legal obligation on the subsidiaries under an agreement to pay the intercompany loans on demand. On this basis, the Tribunal decided that the holding company was carrying out an economic activity and was entitled to claim VAT refunds on its costs.

Traditionally, HMRC have never accepted that adding sums to intercompany loan account is supportive of VAT recoveries. Therefore, it remains to be seen whether HMRC would appeal this decision on the legal principle.

What this means for other holding companies

As this is a First-tier Tribunal decision, the ruling cannot be relied upon by other holding companies.  Nevertheless, holding companies should assess their specific fact pattern in light of this new VAT decision:

  • Where holding companies have been denied VAT refunds on costs, they should consider making fresh claims using the principles emerging from Tower Resources.  There is a generally a 4 year time-limit to make claims;
  • Where holding companies have not been challenged by HMRC, we recommend that companies review their own specific fact pattern based on Tower Resources (and the wider litigation) and take any necessary steps to protect their position.

We have been heavily involved in advising and successfully negotiating results for our NR clients on this VAT issue.  If you have any questions or would like to discuss any issues with us, please contact our Natural Resources VAT specialists Aditi Hyett or Katherine Brown.