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Partial exemption challenges with VAT

Independent VAT consultant Neil Warren reviews the 2019 First-tier Tribunal case about input tax allocations on costs incurred by Royal Opera House Covent Garden Foundation. He covers the details of the case and gives some practical learning points for advisers to consider.

Opera house Do any of us really understand the intricacies of partial exemption? That is the question I found myself asking after reading the recent First-tier Tribunal case of Royal Opera House Covent Garden Foundation [2019] UKFTT 329 (TC), about which sources of income earned at the venue have a direct and immediate link to the cost of putting on shows at this world-class facility. In other words, for example, would the input tax incurred on paying a production company to put on a performance of Mozart’s opera The Magic Flute have a link to taxable ice cream and catering sales earned at the venue, therefore increasing the input tax recovery rate on the charity’s VAT returns?

In this article, I will consider how to allocate input tax between the three different categories that are relevant for partial exemption purposes, and also ask whether HMRC’s historic approach on this fascinating topic is now more out-of-date than last year’s uneaten boxes of Christmas chocolates.