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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Legal history: cases about sponsorship

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Eddystone Computers Ltd VTD 11018

A company which carried on a computer consultancy business bought a microlight aircraft. The tribunal held that the aircraft had been bought for the pleasure of the company’s managing director. Therefore input tax was not deductible.

Peugeot Motor Co plc VTD 16731

The company gave out tickets to football matches and motor races under a staff incentive scheme. The tribunal accepted that the company had made the supplies for the purposes of its business so that the provision in article 3 of the VAT (Supply of Services) Order 1993 was not met.

The tribunal found that the scheme had proved successful in reducing absenteeism. The scheme had also encouraged the submission of ideas to improve efficiency. On the evidence the tribunal found that the company acted for purely business reasons. The tribunal held that the personal benefit derived by its employees was of secondary importance compared to the needs of its business.

Rainheath Ltd VTD 1249

A company which carried on a pig farming business bought a yacht. The yacht was used by directors of the company and their families. It was also let on hire.

The tribunal rejected the company’s argument that it was carrying on a separate business of chartering. It held that in view of the small number of lettings, the limited nature of advertising, and the company’s selectivity in accepting hirers the hiring of the yacht was not a business. The tribunal observed that evidence of performance is to be preferred to the evidence of intent where the latter is unaccompanied by performance. No input tax could therefore be recovered on the purchase of the yacht.

Telecential Communications Ltd VTD 15361

The company provided telecommunications and cable television services. It gave its employees free connections to its cable television and telephone networks.

The tribunal held that the company should pay output tax under the VAT (Supply of Services) Order 1993. The tribunal recognised that the supplies brought some incidental benefits to the company. However, it held that the company’s relevant purpose was a non-business purpose. That purpose was to provide all employees who were in a position to make use of them with the benefit of cable television and free line rental at home.