Durham Cathedral VAT recovery - 'direct and immediate link'

An appeal by Durham Cathedral regarding a recent case involving HMRC could revolutionise the way we look at partial exempt orgainsations' ability to recover VAT.
This appeal concerned the question of whether the VAT incurred on maintaining a bridge could be treated as input VAT and therefore reclaimed by Durham Cathedral subject to the normal VAT rules.

HMRC believed that there was an insufficient link between the bridge and the Cathedral's economic activities and refused the claim. The First Team Tribunal (FTT) disagreed with HMRC.

The claim arose following the Court of Justice (‘CJEU’) decision in the case of Sveda (C-126/14).  That was a case in which the CJEU found that an access path to a site from which the tax payer made taxable supplies had a sufficient link with those supplies, and therefore allowed VAT recovery, despite the fact that users of the path were not obliged to make a purchase or even visit the retail outlet (since they could use the path simply for recreation).

This situation was mirrored in the Cathedral’s case because the bridge was equally suitable for general recreational use as well as for access to the Cathedral itself.

Why does it matter?

This is the first case to be heard by the UK Tribunals on which there has been any reliance on the CJEU judgment in Sveda. That decision has the potential to revolutionise the way we look at the ability of partly exempt organisations (such as not for profit bodies) to recover the VAT they incur.

In the Durham Cathedral appeal, although the bridge (which was the subject of the appeal) was some distance away from the Cathedral, the FTT found that what mattered was whether the costs of maintaining the bridge were actually overhead costs, and so long as that could be established, the tax payer became entitled to recover input VAT subject to normal VAT rules. The decision in this case confirmed that the measure of whether there is a 'direct and immediate link' between expenditure and outputs does not necessarily have to rely on geographical proximity.

For further information about this case, or to discuss its implications for your organisation, please contact Thomas Mobee on 020 7556 1320, or your usual Buzzacott contact.

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