The issue under consideration by the First Tier Tribunal in this case was whether VAT incurred on the cost of newspaper advertisements was wholly attributable to taxable supplies, carried on by Skipton Building Society (Skipton) or partially attributable to exempt services supplied.

Skipton was the parent for a number of subsidiary companies and the representative member of a VAT group. The members of the group engaged in both taxable and exempt supplies. The group's principal estate agency (Connells Ltd) derived 60% of its turnover from estate agency services and 25% from lettings, conveyancing, surveying and valuing. The remaining 15% was derived from exempt mortgage and insurance services and building society agency services.

When advertising properties for sale, some of the advertisements contained ‘strap lines’ referring to other services available from the company such as mortgages. Skipton argued that the group did not sell houses in order to promote its mortgage services, nor did it provide mortgage services in order that it could sell houses. They argued that both were distinct and independent services and the objective of the advertisements was to sell houses and not to promote the agencies’ other services, indeed often the inserts were simply to fill up available space. Consequently they argued that there was an insufficient link between the advertisements and the exempt supplies.

The Commission ruled that where the advertisements mentioned the exempt services the related input tax should be apportioned between taxable and exempt supplies. In arriving at his decision Colin Bishopp, the Tribunal Judge stated that in his view it was impossible to argue that an advertisement that mentions the fact that the advertiser offers mortgage services is not advertising those services. The fact that the primary purpose of the advertisement was to sell houses does not alter the conclusion. He went on to say that the mortgage service was a distinct service and if the advertiser chooses to mention it he must be taken to intend to promote it.

However in cases where the advertisements did not overtly mention mortgage services Judge Bishopp stated that there was no more than an indirect link with the supplies of the mortgage services and that was not enough to deny a full input deduction.

The decision is available at http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4504