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HMRC internal manual

VAT Input Tax


A business can recover input tax on their legitimate costs when it:

  • promotes its business; or
  • provide facilities to its staff.

A business might provide sports and recreational facilities such as a staff gym. If it does, please refer to the guidance at VIT43950.

See also the two cases of Peugeot Motor Co plc and Telecential Communications Ltd at VIT61410.

When a business only makes sporting or recreational facilities available to:

  • the proprietor
  • the partners
  • the directors of a company
  • the relatives and friends of the proprietor, partners or company directors

it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.

It does not alter the input tax treatment if the principle object of the expenditure is to make business contacts. The expenditure is not sufficiently connected to the purpose of the business even if membership of a club did produce this result. See Rosner (FW) (t/a London School of International Business) at VIT61360.

The connection between businesses and sporting events is well established. Some sporting events or teams are closely identified with their commercial sponsors. As a result the sponsor gains widespread exposure.

The same rules apply to smaller companies. They have the same legitimate right to promote their business by means of sponsorship of a sporting event or participant. However, with small businesses there is more chance that the sponsorship is conducted for a private purpose. For example a business may sponsor a local amateur football club because of a personal connection with the team. In such cases you must apply the test at VIT44300.

People who take part in sporting or recreational events such as motor racing or show jumping might say there is a business purpose of advertising or promotion. It can be difficult in these cases to disentangle business and private purpose. The fact that the participant may enjoy the activity is not sufficient reason in itself to deny input tax. You should apply the test at VIT44300.

Remember it does not matter whether the intention of the business was misconceived or that the envisaged benefits did not materialise. The VAT is input tax if at the time the tax was incurred the criteria of the test at VIT44300 were met.

For advertising purposes a business may buy a racing car or a horse for use at events they go to. Part of the VAT incurred may be non-deductible under the business entertainment provisions at VIT43200 if they also invite business guests to attend. See Eddystone Computers at VIT61410.