Input tax claim from an associated business to another

The taxpayer CS Ltd was owned by one director who also owned LD Ltd. Each company was VAT-registered and carried out different activities. 

The dispute concerned work carried out by LD on CS projects for which it charged CS £60 000 plus VAT. CS also owned buy-to-let residential properties and incurred £6 600 of input tax on building costs. This related to exempt rental income so was blocked under the partial exemption rules. However the inclusion of £12 000 of taxable input tax on the charge made by LD resulted in the company being de minimis for partial exemption purposes. CS could therefore reclaim the £6 600 input tax on property repairs; this was because the exempt input tax was less than £7 500 and also less than 50% of total input tax.

HMRC argued that the £60 000 management charge was not relevant to a genuine supply of...