VAT Flat Rate Scheme appeals tend to fall into one of two categories: (1) whether the FRS category is correct, and (2) whether input tax is deductible. This case falls within the second.
The business is in the leisure sector and runs centres with themed rooms which players must navigate to escape. The appeal concerned input tax on the ‘creation’ of those rooms. The FTT found that purchases of equipment and building materials to create the rooms were supplies of goods, ie: finished installed room. They therefore could be treated as capital expenditure goods for the purposes of the FRS and input tax claimed.
The Tribunal commented: “our answer to the question, “What did Great Escape purchase?” is that it purchased finished installed Rooms. They gave designs to Norse Sky and, in return for payment, received the Rooms in situ. In the unusual context of Great Escape’s business, this was not decoration or building work; it was the provision of a composite whole which was supplied in situ in Great Escape’s building. In a different context, a parallel might be a piece of installation art or a complete film set. … The majority of the design work was carried out by Great Escape. Although some design was necessarily carried out by Norse Sky in making those designs a reality, these were ancillary to the supply of the Rooms. Similarly, the process of installing the Rooms was incidental to the supply of the Rooms because that is how they were to be supplied. Any services involved in the design and supply were therefore ancillary to the principal supply of the Rooms.”
The Tribunal found that the appellant company designed the rooms. Norse Sky Ltd provided goods. Any supply of services by Norse Sky Ltd was held to be ancillary to their supply of goods.
This case was not clear cut and HMRC may seek to appeal it.