RCB/65/09 Partial exemption—VAT deduction by theatres on production costs
Revenue & Customs Brief, Issue 65. 14 October 2009
HMRC has revised its policy on input tax recovery on the costs of staging shows (production costs) for which the theatre's admissions are VAT exempt. It follows the Tribunal decision in Garsington Opera Limited (TC00045). Further information on partial exemption can be found in Public Notice 706.
Garsington Opera incurred input tax on the costs of putting together its own “in-house” operatic performances at Garsington. HMRC maintained that the input tax was irrecoverable because whilst putting on operas was the core of Garsington's business, the production costs were directly and immediately linked only to exempt admissions. Garsington argued that the input tax was partly deductible (residual) because the production costs had a direct and immediate link not only to exempt admissions, but also to taxable supplies such as corporate sponsorship, touring (supplies of the production to an outside concert hall), programmes, CDs, intellectual property rights and the occasional supplies of production props and equipment.
The tribunal decision
The Tribunal found for Garsington having identified a direct and immediate link between the production costs and both the exempt admission and the taxable supplies in issue. HMRC have not appealed this decision and has instead revised its policy on when theatres supplying exempt admission can treat input tax incurred on production costs as residual.
It is an established principle of partial exemption that input tax is residual if the costs are “used or intended to be used”