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HMRC internal manual

VAT Business/Non-Business Manual

Legal history: cases about museums and galleries

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

The art gallery carried on various activities. These included public exhibitions for which no entry fee was charged.

It was held that artistic services such as exhibitions provided to the public for no charge were not part of any business activity. This was because these services amounted to a separate activity in which no supplies were made. Alternatively it was because the appellant’s predominant concern was the free display of works of art, which did not involve the making of supplies for a consideration.

Imperial War Museum VTD 9097

The Museum argued that its input tax recovery should not be restricted because it gave free admission to the public on one day a week.

The case was argued under section 15 of the VAT Act 1983 and regulation 30. Section 15 of the 1983 Act is now amended to section 26 of the VAT Act 1994. The case was not argued on a business/non-business basis.

The tribunal found that any input tax attributable to the free admissions was not debarred from deductibility by regulation 30(1)(c). It would have been debarred had it related to either exempt supplies or an activity other than the making of taxable supplies.

The case was distinguished from the Whitechapel Art Gallery case. It was found that the Imperial War Museum only made a single taxable supply of admissions. In Whitechapel it had been possible to identify clearly separate business and non-business activities.

The arguments focused on whether the tax incurred was deductible input tax under section 26. The case did not consider whether the tax was input tax in the first place. This means it provides little useful precedent for other cases.

In Imperial War Museum the tribunal only concerned itself with the activity of admitting members of the public to the collection. It did not look at any of the museum’s other activities.

HMRC does not accept that this case provides precedent for automatically treating all of a museum’s activities as being business. Even charging museums are likely to undertake free, non-business activities such as research, library facilities and treasure trove work.