Floor space used for taxable and non-taxable supplies

The taxpayer had exempt income from gaming activities but also standard rated income from hospitality and entertainment facilities including eight bars and many restaurants. The venue opened in 2005 and was intended by the directors to be a ‘Las Vegas style experience within the boundaries of the UK legislation and the space available’.

The directors decided that an apportionment of residual input tax – VAT paid on mixed costs and general overheads – did not produce a fair result with the standard method based on turnover. The main reason for this was because most overheads related to property costs and the higher gaming income per square footage compared to the restaurant and bar areas gave a distortive result of the use of the building. By applying the legislation for the standard method override (SMO) the directors calculated an apportionment of input tax based on square footage splits in...