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HMRC internal manual

VAT Cultural Services

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‘Managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities’: Cases on exemption for cultural services

There are two important cases concerning the issue of managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities (Note 2(c) of Group 13, Schedule 9 to the VAT Act 1994). They are summarised below.

Bournemouth Symphony Orchestra (BSO) - CA [2006] EWCA Civ 1281; [2006] All ER(D) 101 (Oct) .

In this case HMRC won at every level (Tribunal, High Court, Court of Appeal), and the appellant was refused leave to appeal to the House of Lords.

BSO’s Managing Director was a full time employee, and was paid remuneration of more than £80K. The Court of Appeal held that for the relevant body to have a Managing Director who is paid for taking part in the decision-making process at the highest level … is inconsistent with the exemption … because it does not allow the management and administration to be described as being carried out on an essentially voluntary basis. On the evidence, the Managing Director’s remuneration and his participation in the highest decision-making processes of BSO makes it impossible to say that the management and administration of BSO is conducted on an essentially voluntary basis. Therefore BSO’s supplies failed to qualify for exemption.

Longborough Festival Opera (LFO) - Ch D [2006] STC 818; [2006] EWHC 40(Ch)

In this case HMRC won at the Tribunal but lost at the High Court, and appealed to the Court of Appeal. The Court of Appeal did not hear the case but commented on it in its judgment on BSO.

LFO was formed to stage operatic performances. It was limited by guarantee, and had four trustees, one of whom owned the premises which it used, and had undertaken to guarantee its losses. The court held that in the context of the legislation in question the crucial distinction is being made between commercial profit-making and non commercial non-profit making bodies. The reference in Note 2(c) of Group 13, Schedule 9 to the VAT Act 1994 to financial interest should be construed as being directed at potential enrichment and not as designed to preclude participation in management by persons who for the benefit of the cultural body assumed responsibility for some one or other liability of the body and accordingly the risk of an actual impoverishment.