Attribution of marketing expenditure

The taxpayer’s main income relates to the sale of equity release (ER) products for people who are either retired or approaching retirement. This income is exempt from VAT as a financial service but the taxpayer also received income from estate planning (EP) which is subject to VAT. The company is partially exempt but about 90% of total income is exempt.

A dispute arose about marketing expenditure. HMRC said this was wholly relevant to the ER sales but the taxpayer said it was a general overhead of the company because it was intended to ‘promote the business as a whole’. Input tax could be partly claimed if the marketing expenditure – which annually ran into the “low tens of millions” – was residual ie a mixed/overhead cost. No input tax could be claimed if the costs only related to the ER products.

The taxpayer appealed.

The taxpayer explained...