Partially exempt traders and the attribution of input tax
In North of England Zoological Society v HMRC [2015] UKFTT 287 (19 June 2015), the FTT found that a zoo was entitled to recover input tax incurred in respect of keeping and maintaining animals (animal related costs).
The society operated a zoo. It made exempt supplies of admission charges and a variety of taxable supplies, including catering and retail supplies. It was therefore a partially exempt trader and the question was whether there was a sufficient link between the animal related costs and the supplies of catering, merchandise and books.
The FTT noted that the focus must not be on the charitable objects of the society, but on the commercial operation of the zoo and ‘the core of the zoo’s commercial proposition’ was the animals. Although there were some products where the link to animals was weak or non-existent, ‘looked at in the round’ there was a strong economic link between the catering and retail offerings and the animals, as catering outlets and shops were carefully positioned and themed by reference to the animals.
The FTT concluded that the society’s business model exploited the animals in order to achieve various income streams, the most significant of which were admissions, catering and retail. It was therefore satisfied that, economically, the animal related costs were a cost component of the catering and retail supplies.
Why it matters: The case applies the principles established by case law. It focuses in particular on an economic analysis of the business, taking into account the purpose of the trader in incurring the input tax and the profit derived from the supplies. The fact that the catering and retail supplies were profitable was highly relevant.
Partially exempt traders and the attribution of input tax
In North of England Zoological Society v HMRC [2015] UKFTT 287 (19 June 2015), the FTT found that a zoo was entitled to recover input tax incurred in respect of keeping and maintaining animals (animal related costs).
The society operated a zoo. It made exempt supplies of admission charges and a variety of taxable supplies, including catering and retail supplies. It was therefore a partially exempt trader and the question was whether there was a sufficient link between the animal related costs and the supplies of catering, merchandise and books.
The FTT noted that the focus must not be on the charitable objects of the society, but on the commercial operation of the zoo and ‘the core of the zoo’s commercial proposition’ was the animals. Although there were some products where the link to animals was weak or non-existent, ‘looked at in the round’ there was a strong economic link between the catering and retail offerings and the animals, as catering outlets and shops were carefully positioned and themed by reference to the animals.
The FTT concluded that the society’s business model exploited the animals in order to achieve various income streams, the most significant of which were admissions, catering and retail. It was therefore satisfied that, economically, the animal related costs were a cost component of the catering and retail supplies.
Why it matters: The case applies the principles established by case law. It focuses in particular on an economic analysis of the business, taking into account the purpose of the trader in incurring the input tax and the profit derived from the supplies. The fact that the catering and retail supplies were profitable was highly relevant.
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