Purpose of sports complex attached to main residence

The taxpayer registered for VAT in 2013 and claimed input tax on expenditure relevant to the cost of constructing a large sports and leisure complex on land that was adjacent to his dwelling house and in the gardens and grounds of surrounding properties that he owned. He claimed input tax of £157 460 between November 2013 and August 2016 which HMRC disallowed by raising a ‘best judgment’ assessment (VATA 1994 s 73(1)). The overclaims were treated as a ‘deliberate’ error for penalty purposes and a 35% penalty was also charged. This is the minimum penalty in the 35% to 70% range for errors that are ‘deliberate not concealed.’

The taxpayer claimed that when he incurred the expenditure in question he had an ‘intention’ to make taxable supplies – membership fees for sports and leisure facilities; storage facilities for his accountancy practice to store records in...