VAT exemption rules clarified

HM Revenue & Customs has published a brief to clarify whether charities providing "cultural services" are exempt from charging VAT on ticket sales.

It follows Court of Appeal Judgements in cases involving Bournemouth Symphony Orchestra and Longborough Festival Opera.

The brief gives information on how to interpret the term “direct or indirect financial interest”, because VAT legislation dictates that charities providing cultural services are exempt if they are managed by someone who does not have such an interest.
According to the brief, “any direct or indirect financial interest only affects entitlement to exemption if it is actual, not potential”.

The brief explains that a person managing a cultural body is deemed to have a direct or indirect financial interest only when the person receives payments for services supplied to the cultural body above the market rate, paid as routine overheads, or receives profit-related payments; or when there is a link between the payments and the person’s participation in the direction of the cultural body’s activities.

In May 2006, HM Revenue & Customs lost a Court of Appeal case against Longborough Festival Opera, which meant the charity would not have to add VAT to its ticket prices.

But Bournemouth Symphony Orchestra lost a Court of Appeal case in October last year, which resulted in the orchestra having to add VAT to the cost of tickets.

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