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Was input tax fully recoverable when a taxpayer received subsidies?

By Andrew Needham, August 2021

This was an appeal by the appellant against HMRC’s decision to disallow a proportion of his input tax on the basis that it related to outside the scope subsidies. 

The appellant operated a business in which he generated hot air from burning wood chips. The hot air was used to dry wood chips and other materials belonging to him or others, and the appellant either sold the dried materials, retained them for burning himself or charged third parties for drying their own materials. He also received periodical support payments (PSPs) under the Renewable Heat Incentive scheme for Northern Ireland (the ‘RHI scheme’). The appellant had prepared his VAT returns on the basis that all of the input tax which he had incurred on supplies made to him was deductible input tax. 

At all material times, the sales made by the appellant’s biomass business (of

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