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Tax tales of the (slightly) unexpected

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24th Apr 2014
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A museum dedicated to the life and work of the late author Roald Dahl has won a partial victory over HMRC in a dispute over VAT.

The museum paid VAT on some expenditure incurred in refurbishing or maintaining museum exhibits.  It argued that this VAT should be treated as residual input tax for purposes of the partial exemption calculation, as the expenditure in question has a direct and immediate link “not only with the museum’s exempt supplies of admissions to the museum, but also with taxable supplies made in the museum shop.”

HMRC rejected the VAT claim, saying that the VAT should treated as exempt input tax.  

The museum appealed, arguing that VAT relating to exhibition costs was incorrectly categorised. It attempted to recover £2,632 which it had paid in VAT over three years.

The museum also indicated that it intended to treat the VAT to be incurred on a planned gallery refurbishment as residual.

The first-tier Tribunal (The Roald Dahl Museum & Story Centre v Revenue & Customs, TCO 3445) backed most of HMRC’s arguments.

“The Tribunal considers that sales in the shop and admissions to the Museum are separate and ‘freestanding’ supplies.  If a person makes two separate supplies, one at a profit and one at a loss, and uses the profits from the former to finance the loss on the latter, that does not mean that the costs of supplying the former are a cost component of the supply of the latter.  It is simply a case of profits from one activity being spent for the purpose of subsidising or financing a separate activity.”

But the tribunal did uphold one part of the museum’s appeal.

This involved moving the contents of a hut in Dahl’s garden, where the author wrote, into a replica in the museum.

It cost around £500,000, including VAT of around £100,000, to redesign and refurbish the gallery.

The tribunal concluded that the VAT paid by the museum as part of its payment to consultant Outside Studios was residual input tax.

Tribunal judge Christopher Stalker said the “Hut Book” was an integral part of the gallery display.

“The tribunal thus concludes that there is a direct and immediate link between the services supplied by Outside Studios and the Hut Book.  As the Hut Book is not only used in the gallery as part of the display, but is also sold in the museum shop as a taxable supply, it follows that there is a direct and immediate link between the cost of the services supplied by Outside Studios and one of the taxable supplies made by the museum.”

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