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HMRC internal manual

VAT Input Tax

Legal history: cases about charges for private use

Danfoss/Astra Zeneca 2009 STC 701
Julius Fillibeck Sohne 1998 STC 513

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.

Danfoss/Astra Zeneca 2009 STC 701

The joined case of Danfoss and AstraZeneca involved the provision of free meals to both employees and business contacts. The business had recovered VAT on the meals and the European Court of Justice was asked to consider whether it was appropriate to apply a private use charge.

The Court concluded that where the meals were provided for a strict business purpose no such charge should arise. In reaching this conclusion they carefully considered the circumstances of the free meals. In particular:

  • the lack of choice by the recipient of what, when and where to eat;
  • the relatively basic nature of the fare; and, crucially,
  • the fact that the meals were provided to ensure the smooth running of business meetings

  • showed this test was met. This is the strict business purpose test.

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    Julius Fillibeck Sohne 1998 STC 513

    An employer recovered VAT on the cost of providing transport to his staff to get them from their homes to construction sites. As commuting expenditure is private, the Court was asked to consider whether it was appropriate to apply a charge to reflect the private use by the employees.

    The Court’s starting point was that a charge applied in principle but it considered the particular facts of the case. It concluded that because it was practically impossible for the employees to get to the site on their own a private use charge should not be applied. From this judgment we must therefore consider whether it is necessary for the taxable person to provide goods or services that are enjoyed privately in order for them to make their taxable supplies.

    This is the necessity test.