VAT CASES - 01.10.2020

Input tax could not be claimed on costs of an awards ceremony

The case. The Aitmatov Academy (AA) makes taxable supplies of translating and interpretation services, linked to the literary industry. It organised an awards ceremony at the House of Lords and claimed input tax of £1,299 on its March 2018 VAT return in relation to costs.

HMRC disallowed the claim as a non-business expense because all of the attendees at the ceremony were mainly from universities and libraries, rather than constituting existing or potential customers.

The law. Any input tax claimed by a business must have a direct link to taxable supplies. The expense must be for the purpose of the business. For example, if AA had gained advertising benefits from the event, this would have strengthened the argument about it being a business event, although it would need to be shown that there was a business “purpose”, not merely a coincidental business “benefit”.

There is also an input tax block on costs of business entertainment for non-employees. Entertaining relates to free hospitality supplied to a person, e.g. free food and drink.

The decision. The First-tier Tribunal supported HMRC and decided there was no business motive to the event. It was given for cultural rather than business reasons. There were no admission charges, which would have been subject to output tax and therefore enabled input tax to be claimed on related costs. Even if the business purpose test was satisfied, the input tax would be blocked as it related to business entertainment for non-staff.

Key points.HMRC’s input tax manual VIT10200 accepts that there is no clear test of what an expense for business purposes is. It highlights that costs linked to “sporting and leisure orientated activities” will not usually qualify. It also confirms that it is up to taxpayers such as AA “to explain how the purchases in question play a valid part in their business”. AA failed to do that in this case.Always consider making charges for attendance of non-staff at similar events.