Allowable input tax for the flat rate scheme

The taxpayer operated a game in which players are locked in a themed room and have to complete puzzles and tasks to escape.

It claimed input tax on invoices for props and room fitting expenses used by the company for the games. At the time the taxpayer was in the flat rate scheme so to claim input tax the expenditure had to relate to capital goods costing more than £2 000 including VAT.

HMRC said the invoices related mainly to a supply of design and consultancy services and the goods were incidental to the supply of services. Input tax could not be claimed on capital services by taxpayers using the flat rate scheme.

The taxpayer said the panels screens fibreglass parts doors gates and other items were capital items and not linked to any specific building because they could be dismantled and used at...