Input VAT – attribution to taxable supplies, July 2015

The North of England Zoological Society (the Society) appealed against HMRC’s assessments for input VAT in excess of £1.3 million which HMRC concluded the Society was not entitled to recover. The Society makes both taxable (retail and catering) and VAT exempt (zoo admission) supplies; therefore, the Society is partially exempt and is not entitled to recover all of the input VAT incurred in running the zoo.

The main issue before the First Tier Tribunal (FTT) was whether ‘animal related costs’ (costs of keeping and maintaining animals in the zoo) were a cost component of taxable supplies (retail and catering).

The Society contends that the partial exemption standard input VAT recovery method (which it has used) represents a fair and reasonable apportionment of input VAT because ‘animal related costs’ are a cost component of the retail and catering supplies. HMRC, on the other hand, argued that the partial exemption standard method does not give a fair and reasonable apportionment because the ‘animal related costs’ are cost components of VAT exempt admissions and only some of the Society’s taxable supplies (in particular the ‘animal related costs’ are not cost components of the Society’s supplies of catering and retail). HMRC contend that the partial exemption Standard Method Override (SMO) should be applied to give a fair and reasonable apportionment of input VAT.

It was for the FTT to consider whether there is a sufficient link between ‘animal related costs’ and supplies of catering, merchandise and books to justify apportionment of VAT incurred on ‘animal related costs’ to those taxable supplies (as well as to other taxable supplies and VAT exempt zoo admissions).

The Tribunal found that it was clear from an objective analysis that the zoo has two purposes:

  1. To increase and improve the educational experience of visitors in line with the Society’s charitable objectives; and
  2. To increase revenue from all income streams including admissions, catering and retail. 

The Tribunal also noted that if the Society did not have catering and retail outlets then the zoo would have to operate on a much smaller scale. The zoo as an economic activity heavily relies on the income from the retail and catering outlets, which in turn relies on animal exhibits. It is significant that the catering and retail outlets were profitable. In five of the ten years at issue the Society would have made a deficit without the retail and catering income.

The Society’s appeal was allowed. The Tribunal concluded that the ‘animal related costs’ have a direct and immediate link to the catering and retail supplies. The animals were exploited to achieve various income streams. The Tribunal was satisfied that the ‘animal related costs’ are a cost component of retail and catering supplies.

This decision may be especially relevant to zoos, museums and theatres. Particularly those relying on HMRC guidance set out in Revenue and Customs Brief 65/09.

The decision of the FTT may present an opportunity for organisations that have applied the SMO to make a claim for under-claimed input VAT. However, FTT decisions are only binding on the parties involved and HMRC may challenge a claim. The case also acts as a reminder that charities should review their partial exemption position as a part of the annual adjustment process.

If you would like to discuss this case, or any other VAT matters, please do not hesitate to contact Stewart Henry, Laura Beckett or Sophie Cox on 01206 321029 or via email;; CVC can advise whether your organisation has a valid claim.














Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with a nationwide client base and offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations.


We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.


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