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HMRC internal manual

VAT Cultural Services

HM Revenue & Customs
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‘Managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities’: Direct or indirect financial interest

A body is disqualified from exemption where a person responsible for managing and administering the body at a high level has either a direct or indirect financial interest in its activities.

Sometimes a cultural body will have a trustee who is also an operational member of the cultural body - for example an orchestral player or theatre director. Even where the person concerned receives no remuneration for their role as trustee, but is remunerated for their operational role, this will normally disqualify the body from exemption, as the payment gives the person a financial interest in the activities of the body, albeit not for the duties of trustee.

However, if the person concerned has no voting rights, this will not in itself disqualify the body from exemption. If they are not making decisions of a high level policy / strategic nature, they can be ignored for the purposes of this condition.

In line with Note (2)(c) to Group 13 of Schedule 9 to the VAT Act 1994 - on how to interpret the term direct or indirect financial interest - the key point is that any direct or indirect financial interest only affects entitlement to exemption if it is actual financial interest and not the potential to have such an interest. It is now our view that a person who is managing and administering the cultural body can be seen to have a actual direct or indirect financial interest in its activities only when:

  • the person receives any payments for services supplied to the cultural body above the market rate, paid as routine overheads, or receives any payments which are profit-related (whether below, at or above market rates); and
  • there is a link between the payments and the person’s participation in the direction of the cultural body’s activities.