The appellants (HMRC) appealed to the Upper Tribunal (UT) against a decision of the First-tier Tribunal (FTT) allowing the appeal of Hotel La Tour Ltd (HLT) against a decision of HMRC and a corresponding assessment. HMRC’s decision and assessment were issued on the basis that HLT was not entitled to an input deduction in respect of certain services supplied to HLT because, in HMRC’s view, they were directly and immediately linked to HLT’s exempt supplies, viz the sale of shares in its subsidiary, Hotel La Tour Birmingham Limited (HLTB).
HLT argued that the relevant services were directly and immediately linked to its taxable supplies because the shares in HLTB were sold in order to raise funds for the building of a new hotel in Milton Keynes.
HMRC argued that the FTT had erred in law and applied the wrong test for determining whether there was a direct and immediate link between the services and the sale of the shares and the