When an entity has both business and non-business activities input tax claims may need to be apportioned to allow for this split. A case has highlighted that other objectives or long timescales do not necessarily have any impact of how such claims should be apportioned.

In this case a charity acquired land which was used to plant trees and would eventually establish woodlands. The charity’s business activities would come from the sale of the sustainable timber in the future. Of course the trees would need to grow before this income could be realised. The charity incurred costs planting up and maintaining the woodland and the charity wanted to claim the input tax on these costs as they put forward that these directly related to the future timber sales.

HMRC argued that these costs should be subject to a business/non-business apportionment with a significant proportion allocated to non-business due to the aims of the charity. HMRC claimed that there was no immediate link to making taxable supplies due to the fact that the timber might be sold far in the future.

The First-tier Tribunal decided the aims of the charity were not relevant in this particular case.

The judge stated the charity was ‘carrying on an economic activity of operating woodlands on a commercial basis with a view to the sale of timber and incurred costs such as purchasing young trees with the intention of using them in that activity’. Therefore the number of years it would take to realise the sale had not impact on the business/non-business apportionment.