If an event is run for free or at a deliberate loss, then it should be treated as non-business activity and related-costs cannot therefore be reclaimed. When making purchases for these events, you should select VAT code PN - Purchases No VAT and put in the notes that the purchase is for a loss-making event and so the VAT should not be reclaimed.
The exception to the above rule is where the shortfall is covered by an event sponsorship, where an external sponsor has provided funding for the event in exchange for a taxable service such as advertising.
