FINANCE NEWS: Cultural amenities face VAT hike

Major museums, galleries and concert halls could face an increase in their VAT bills as a result of a new policy from Customs & Excise.

Under the new guidance, cultural charities such as museums, galleries, theatres and zoos, will receive VAT exemption on admission prices. However, they will not be able to reclaim VAT on their costs.

There will, therefore, be a larger tax bill for the organisations that receive large amounts of public funding, and that spend much more than they receive in ticket sales. Groups more likely to benefit from the policy will be the charities and cultural institutions that generate much of their income from admissions.

The new policy relates to a ruling from the European Court of Justice, which was made two years ago. This ruling was in response to a legal challenge by London Zoo against a Customs & Excise restriction on VAT exemption for admission charges.

The original exemption had referred only to non-profit groups managed solely by volunteers. But the European Court ruled that it should apply to all organisations whose policy-making was determined by volunteers, effectively broadening the restriction to all charities.

Peter Ladanyi, charity VAT manager at accountants Chantrey Vellacott, criticised Customs & Excise for taking two years since the initial court ruling to publish guidance on the issue.

He said: "Charities such as London Zoo, which will be winners, should ensure that they submit claims for back VAT, if they have not already done so."

He added that the charities planning big capital projects could be worst hit by the changes. While Customs & Excise has made a concession that allows continued VAT relief for existing building projects, in the longer term such projects by cultural charities will become more expensive, due to the fact that they will have to pay VAT of 17.5 per cent.

Ladanyi argued that it was the duty of government - although not necessarily Customs & Excise - to ensure that the new policy did not jeopardise the improvement and expansion of museums, theatres and concert halls.

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