New VAT rules ‘to hit IT firms hard’
Wednesday December 2, 2009
A new VAT regulation by the European Commission could cost IT firms in the UK hundreds of thousands of pounds, industry figures have warned.
Most technology firms have a classic group structure of a pure holding company that stands above various subsidiaries. These firms usually group holding companies with subsidiaries, which allows them to recover VAT.
However, the new EC stipulation will make this type of grouping illegal, which means VAT incurred by a pure holding company will be an additional cost.
Business advisory firm Grant Thomas pointed out that this will drastically raise companies’ costs at such a critical economic period.
Niki Dixon, partner at the company, explained that if a holding company were to raise capital of £5 million, the advisors’ fees would be around £500,000, which would mean a VAT bill of £100,000.
"[This] will increase the real cost of raising money at a time when every penny counts," she said.
The UK and six other EU member states have been given until January to comply with the regulation.