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HMRC internal manual

VAT Cultural Services

VAT on cultural services: developments since the introduction of the exemption

One of the qualifying conditions for eligible body status is that a cultural body must be managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.

At the introduction of the cultural exemption, HMCE’s interpretation of managed and administered on a voluntary basis was detailed in the June 1996 version of Notice 701/47: Culture. This stated that ‘if any payment is made for services of a managerial or administrative nature including those carried out on a day-to day basis…. it will not be eligible for exemption’.

However, the Zoological Society of London challenged this interpretation, which had resulted in them being refused exemption. The matter was eventually referred to the ECJ, which drew a distinction between the taking of key policy decisions and the implementation of them, and ruled that the term managed and administered in EC VAT law referred to:

  • those persons designated to direct the body at its highest level according to the constitution, and
  • those who in fact, take the decisions of last resort - especially in the financial area - and carry out the higher supervisory tasks.

As a result of this ruling, HMCE policy was revised. Although this revision was announced in December 2003, formal implementation of the new policy was deferred to 1 June 2004 to allow cultural bodies time to review their position. Cultural bodies could, if they wished (and met the revised qualifying criteria), backdate their claim to exemption, subject to capping provisions, and submit a claim for overpaid tax. In addition, limited transitional relief was made available to bodies with major building projects in progress at 1 June 2004.