Finance News: Acevo urges change on VAT rule

Acevo is calling for VAT rules to be changed so that they stop penalising charities that give their chief executive or other paid directors seats on their trustee board.

Bournemouth Symphony Orchestra last week lodged an appeal with the High Court after a VAT tribunal ruled that it was not eligible for tax reliefs worth £153,000 because its paid managing director was a member of its board.

The chief executives' body says that current Customs & Excise rules on VAT exemptions for cultural charities such as orchestras, theatres and zoos are a mess and "an unintentional obstacle to organisations looking to reform their governance".

According to research by Acevo, 50 per cent of chief executives want a place on their charity's trustee board, but only 3 per cent actually have one.

The issue hinges on the so-called "cultural exemption" which gives non-profit cultural organisations relief from VAT on ticket sales.

Customs has stated that the exemption only applies to organisations that are managed on an "essentially voluntary" basis. If one or more of the people identified as managing and administrating an organisation "at the highest level" are paid, the exemption does not apply.

But Andrew Minns, head of finance at the Bournemouth Symphony Orchestra, said that tax treatment should not determine whether or not a chief executive sits on a charity's board.

"It's stupid to take our chief executive off the board for VAT purposes," he said. "He is there for all sorts of reasons, including to give credibility."

The situation for cultural charities is further complicated by the fact that many do not want the cultural exemption to apply to them. The exemption only benefits organisations that generate large ticket sales. Apart from exempting charities from charging VAT on tickets, it also stops them recovering VAT on related services such as the cost of performances, or buying equipment.

For cultural charities that spend more than they receive in box office sales, the exemption makes them worse off.

According to Peter Ladanyi, charity VAT manager at Chantrey Vellacott, some arts organisations have seconded their chief executive onto their board specifically in order to disqualify themselves from the unwanted exemption.

But Nick Kavanagh, head of policy at Acevo, said that rules needed to change to allow charities the freedom to decide governance arrangements on their own merits. "Whether a charity has executive or non-executive trustees should be a governance matter, not an excuse to get out of bizarre VAT regulations," he said.

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