CA-2024-000806 - [2025] EWCA Civ 1259

HCL’s Supplies

HCL’s supplies to its customers fall into different categories for VAT purposes. Supplies of services of gambling are exempt from VAT (under Group 9 of Schedule 4 to VATA). Supplies of hospitality in its bars and restaurants, and supplies of entertainment by means of tickets sold to shows in its theatre, are taxable at the standard rate of VAT. HCL is therefore a “partially exempt” trader.

HCL incurs input tax on goods and services purchased in and used for business purposes. To the extent that those goods or services are directly attributable to HCL’s taxable supplies, associated input tax can be reclaimed in full by HCL, see regulation 101(2)(b). To the extent that those goods or services are directly attributable to gambling supplies, associated input tax is irrecoverable, see regulation 101(2)(c). This appeal concerns input tax incurred by HCL which is not directly attributable to taxable or exempt supplies and is “residual” input tax, also sometimes referred to as input tax on “overheads”, as to which see regulation 101(2)(d).

The main sources of HCL’s residual input tax in the relevant periods are rent, building maintenance (including the cost of utilities and air conditioning), cleaning, marketing and security. HCL also incurred input tax on refurbishing the Hippodrome in the period prior to its opening in 2012; the associated input tax falls under the capital goods scheme (“CGS”) requiring an annual adjustment of deduction for 10 years.