Link between production costs and supplies of catering

The Royal Opera House was a charity so income from sales of tickets for opera and ballet performances were exempt from VAT. It also offered taxable supplies of catering facilities. The dispute was whether VAT should be recoverable on a proportion of production costs.

HMRC considered the only direct and immediate link of the production costs was with the sale of tickets so that it was not possible to recover the input tax. The foundation said there was a direct and immediate link with the ticket sales and the supply of catering services and therefore an apportionment was required.

The First-tier Tribunal found in favour of the taxpayer holding that catering services were economically linked to the production costs. The Upper Tribunal allowed HMRC’s appeal saying there was an indirect link economically between the production costs and the catering supplies but it was not enough to be direct...