The question whether input VAT has a direct and immediate link with particular supplies should not be based solely on whether the link is an economic link.
The FTT has accepted that input VAT on supplies of Google advertising services purchased by sofa retailers was directly attributable solely to taxable supplies of sofas: Sofology Ltd v HMRC [2022] UKFTT 00153. The FTT rejected HMRC’s arguments that the input VAT was either residual or in part attributable to exempt supplies of insurance intermediary services made by those retailers when selling sofas to customers.
Source Simmons & Simmons
