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HMRC internal manual

VAT Cultural Services

Cultural bodies with local authority councillors as trustees: Background

Local authorities are sometimes involved with theatres and other cultural bodies, normally where, in return for financial support, they nominate councillors to the board. (Note - these are not cultural bodies which the local authority own, but those in which they have a financial interest.) Generally speaking, no more than one or two councillors are appointed and they will usually account for less than 20% of the total number of trustees.

The reason for their appointment as trustees is usually to monitor the expenditure of the monies awarded by the local authority; and in this respect they are required to act in the best interests of the local authority. However, in this and all other respects (i.e. non-financial) the councillor is required (if the body is a charity) under Charity Commission regulations / law to act in their own best judgement and independently of the local authority.

Traditionally, councillors were paid attendance allowances for each meeting they attended, but this has largely been replaced with what is effectively a salary, designed to cover all the roles and activities of the councillors other than those which involve significant additional responsibility. It will therefore cover, amongst other things, their representative role as a trustee on the cultural body for which no separate remuneration is paid. Occasionally, councillors opt to renounce their pay as they consider public duties should not be remunerated, but this can be rescinded at any time.

To qualify as an eligible body for the purposes of the cultural exemption, a body must meet all three of the conditions laid down under Note (2) to Group 13 of Schedule 9 to the VAT Act 1994, the third of which is that it must be managed and administered on a voluntary basis by persons with no direct or indirect financial interest in the results of its activities. As a result of the policy change following the ECJ ruling in the case of The Zoological Society of London (C267-00), a body need only be essentially, not exclusively, managed and administered on a voluntary basis to meet this condition. Therefore, the fact that remunerated staff take part occasionally or peripherally in the adoption of a decision of last resort will not in itself disqualify a body from exemption; but if one or more people who manage and administer the body at the highest level receive remuneration (subject to the conditions in VCULTURE2300) then the body will not qualify for exemption.

However, there is an issue over the application of this condition where the payment of salary is being made by a third party - in this case, councillors paid by the local authority who are appointed as trustees to cultural bodies.