High Court comes down against orchestra over tax exemptions

The Bournemouth Symphony Orchestra is to appeal against a High Court ruling that could cost it and many other charities thousands of pounds in VAT.

Mr Justice Mann ruled that the orchestra, one of the 10 largest in the country, should pay VAT on the money it gets from ticket sales because its managing director, Michael Henson, sits on the board of trustees.

Although Henson isn't paid for his trustee duties, the judge decided that his mere presence on the board meant the organisation was not managed or administered on an "essentially voluntary" basis.

"Essentially voluntary" is the phrase adopted by the European Court in 1990 to determine whether culture charities should be exempt from paying VAT on ticket revenue. However, Mr Justice Mann ruled the orchestra was only "largely voluntary" and therefore unable to claim VAT exemption.

The ruling has cost the orchestra, which has an annual turnover of £6m, £150,000. Other orchestras, museums, theatres and zoos could be similarly affected.

"We intend to go to the Court of Appeal and are quite prepared to take it all the way to the European Court," said Henson. "There are a variety of organisations behind us waiting to see what happens."

Simon Baxter, VAT director at professional services organisation Deloitte, which advised the orchestra, said: "We were looking at this case to provide some clarity on VAT. Instead, it has muddied the waters and introduced another hurdle for charities to overcome."

He said the case suggested that HM Revenue & Customs intended to take the narrowest possible view of the definition of cultural exemption.

The exemption applies to cultural charities that are "managed and administered on an essentially voluntary basis by persons who do not have a financial interest in the result of activities". Although agreed in 1990, the ruling was only introduced in the UK in 1996.

Six years later, London Zoo won a landmark ruling that determined the phrase "managed and administered" applied only to people at the highest level - the board of trustees. Because the zoo's board members were unpaid, it did not have to give 17.5 per cent of ticket money to the Government.

By shifting the definition from "essentially voluntary" to "largely voluntary", the latest ruling could leave the growing number of cultural charities with paid trustees exposed.

Adrian Houstoun, VAT partner at chartered accountants Kingston Smith, said: "Charities need to make it clear that paid staff don't make board decisions if they want the exemption."

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