VAT and services provided for free

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A childrens' adventure park (with onsite shop and restaurant) charges an admission fee, however over the year around 5% of visitors are given complimentary admission for free.

I understand that in scenarios where services are given away for no consideration, no supply has deemed to have taken place and no VAT is due - the services are not bought in, and there are no marginal costs of each free admission, so no output VAT charge arises.

However, does this have any effect on the ability to recover input VAT incurrred on general overheads (site maintenance costs and the like)? Could HMRC argue that 5% of input VAT on overheads is irrecoverable? 

Replies (8)

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chips_at_mattersey
By Les Howard
20th Aug 2021 15:25

Yes, HMRC could argue that 5% of the activities are non-business and disallow input tax to that extent.

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Replying to leshoward:
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By Islander
20th Aug 2021 17:08

Thanks Les - would you suggest the company seeks specialist advice, seeks agreement with HMRC, or simply documents their argument for full VAT recovery and accepts that HMRC could challenge it?

I'm mindful that this can be a grey area and that there are various cases that have gone either way, turning on the specific facts.

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By David Ex
20th Aug 2021 15:51

Does the reason why free admission is given make any difference? For example, is it one “free” ticket for parties of 10 or more?

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Replying to David Ex:
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By Islander
20th Aug 2021 17:12

It's a mixture of promotional giveaways and staff & their friends.

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By Bobbo
20th Aug 2021 15:53

I would think the reason *why* 5% of visitors are given free admission is paramount.

Is it simply at the whim or whomever is in the ticket booth that day?

Are the 5% of visitors by coincidence friends and family of the directors?

Is free entry some sort of prize draw prize or a loyalty scheme?

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Replying to Bobbo:
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By Islander
20th Aug 2021 17:10

Of the 5%, about 1/3 are staff and their friends - a perk of the job. The remainder is promotional admissions for tour ops, coach companies and suppliers etc.

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Replying to Islander:
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By David Ex
20th Aug 2021 17:25

Islander wrote:

Of the 5%, about 1/3 are staff and their friends - a perk of the job. The remainder is promotional admissions for tour ops, coach companies and suppliers etc.

Would have thought staff benefits and promotions were business purposes although I’m not sure what the VAT test is.

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Replying to Islander:
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By paul.benny
21st Aug 2021 14:51

Inclined to agree with David Ex. Staff discounts are rarely held to be a benefit in kind for income tax, especially as here, where the marginal cost is negligible. Obviously VAT is not the same thing - and why should different branches of HMRC be wholly consistent.

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