Important VAT case supported by First Tier Tribunal

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The First Tier Tribunal have recently supported a taxpayer in an important VAT case. HMRC had denied full input tax reclaim on business costs where a grant or subsidy was needed in order for the business to be profitable. The FTT rightly found that profitability of a business is irrelevant for input tax deductions. The correct interpretation is for input tax to be allowed in full, or not at all, depending on whether the activity is business (whether subsidised or not) or non-business (e.g. a grant only activity).