Do expenses have to be linked to a particular taxable supply before input tax may be claimed? In Durham Cathedral v. HMRC [2016] UKFTT 750, the Durham Cathedral carried out both non-economic (i.e. the religious activities in the cathedral) and economic (operating a café and gift shop) activities on its premises.

Under an agreement with the HMRC, where the Cathedral incurred costs that were not ‘directly or exclusively’ for either business or non-business activities, the expenses would be split 35% for non-business and 65% for business.

The Cathedral carried out repairs on a bridge giving access to the Cathedral and sought to deduct the input tax incurred on the repair expenses in accordance with the 35%/65% split.

The HMRC took the view that there did not exist a sufficient and direct link between the repair of the bridge and the business activities of the Cathedral, and as such, the repair costs could only be linked to the non-business activities.

The First Tier Tribunal firstly held that the business and non-business activities of the Cathedral were carried on in the same place so it was impossible to say that the repair expenses on a bridge leading to the Cathedral were only linked to the non-business activities. Instead, it was either linked to the total activities or to none at all. In this regard, the expenses were linked to the total activities of the Cathedral.

Next, the First Tribunal, agreed with the European Union case of ‘Sveda’ UAB v Valstybine mokesciu inspekcija prie Lietuvos Respublikos finansu ministerijos, third party: Klaipedos apskrities valstybine mokesciu inspekcija EU:C:2015:712 [2015] STC 447 (Sveda), where it was held that an expense would have a direct and immediate link with a person’s economic activity as a whole if the expense was part of his general costs. In this regard, there need not be a link between the expense and a particular output transaction. This test is also an objective one and not dependent on the taxpayer’s intentions.

In the circumstances, the costs of the repairs to the bridge were the general costs of the Cathedral and did have the required direct and immediate link to the Cathedral’s economic activities. A portion of the input tax payable on the repair costs could hence be claimed.

Editorial Note

An issue of this kind has not been tested before the Singapore Board of Review or the Courts. The principle that so long as an expense is part of a taxpayer’s general costs or overheads, the input tax attributable to the expense should be allowed is a plausible one for application to our GST regime. However, it should be noted that this case (as are most UK VAT cases) is grounded in EU VAT principles, one of which is the overlaying of the “economic activity” concept over “taxable supply”, for input tax claim purposes. Thus, this case should be approached with care in the Singapore context.