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HMRC internal manual

VAT Sport Manual

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HM Revenue & Customs
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Sport: Input tax

Entitlement to deduct VAT on purchases connected with the running of competitions and events as input tax is subject to the normal rules, including those for partial exemption - see Public Notice 706 Partial Exemption. However, the decision by the VAT Tribunal in the appeal of Manx International Rally Limited (Man/91/196) may be raised by traders to argue that some input tax is reclaimable where exempt competition entry fees are concerned.

Manx International Rally Limited appealed against an assessment for VAT it had reclaimed on expenses incurred in running the Manx International Rally, which was the appellant’s main activity. In addition to fees paid by competitors for entering the rally, the organisers also received sponsorship payments from various sources - with the largest sum paid by the Manx Tourist Board. There was no dispute that the entry fees were exempt under item 2 of Group 10 of Schedule 9 of the VAT Act 1994, and that the sponsorship payments were standard-rated. However, the appellant claimed that all its income (exempt and taxable) related to promoting the rally and that without the rally there would be no sponsorship from the Tourist Board. The Isle of Man Treasury (the respondent) argued that all of the costs of the rally were incurred only in providing a supply to the competitors and that, as each competitor’s right to enter the rally was an exempt supply no input tax could be deducted in relation to the rally’s costs.

The Tribunal concluded that the rally was supplied to the sponsors as well as the competitors. It also considered whether the appellant, when organising and managing the rally, carried out an activity other than making a taxable supply. The Tribunal reasoned that, on the basis both sides had accepted the appellant made a taxable supply to the sponsor, that the rally was the appellant’s only activity and all that it was doing was related to the rally, then the rally must be a taxable supply (in part at least). The appellant was therefore entitled to credit for some input tax incurred in organising the rally.

If anyone attempts to use this decision to recover VAT on expenses incurred in organising exempt competitions they are to be advised that it is unique to the facts in this case and is not automatically a precedent for any similar circumstances.