Sofology Limited & Anor v The Commissioners for HMRC
Decision date: 29 April 2022
Neutral citation: [2022] UKFTT 153 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
This case concerned VAT assessments disallowing input tax reclaimed by sofa retailers Sofology and DFS on Google pay-per-click (PPC) advertising. The Tribunal found the PPC costs were directly and immediately attributable only to the taxable supply of sofas (not to the exempt insurance-intermediary services) and were not general overheads, so the appeals were allowed and the assessments set aside as regards denial of the PPC input tax.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
Input tax may be recovered only where the cost has a direct and immediate link to the taxable supply; economic importance or commercial correlation does not convert an indirect link into a direct and immediate one. In assessing advertising costs, objective factors such as the advert content and the landing page content/layout are highly relevant to identifying which supply(s) the cost directly and immediately serves.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The judgment suggests the "physical vs economic" dichotomy is unhelpful and that analysis should focus on whether any economic link is direct and immediate or indirect. It also indicates that "overheads" are a residual category to be used only where no direct and immediate link to any supply can be identified.