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Not for profit organisations suffer VAT blow

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22nd Jul 2005
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Not for profit organisations have been dealt a tax blow by a court ruling on VAT

The High Court ruled yesterday (July 21) that the Bournemouth Symphony Orchestra (BSO), a registered charity, does not qualify to treat admission income as VAT exempt. This decision will disappoint all cultural organisations - including museums, theatres, orchestras and zoos - who had been awaiting the BSO decision for clarity on this issue.

The debate over VAT exemption on admission income has been rumbling for several years. In order to quality for the exemption, an organisation must be managed on an 'essentially' voluntary basis. However, there has been uncertainty over which organisations meet this test. In 2002, the European Court of Justice said that London Zoo met the criteria and was entitled to treat its admission income as VAT-free. But in October 2004, the VAT tribunal said that BSO was not entitled to the VAT exemption, because it employed a paid managing director on its board. The recent ruling by the High Court upheld the tribunal's decision.

Simon Baxter, indirect tax director at Deloitte, says: 'BSO is exactly the sort of organisation to which the VAT exemption was intended to apply. Customs approach to similar organisations has been inconsistent and many charities were hoping this case would create certainty on when VAT exemption should apply. Rather, it has created even further confusion and seems to be contradictory to the principles established by the European Court in the case of the London Zoo.'

Charities providing cultural services throughout the UK are severely affected by the 17.5% tax charge on their ticket income, adds Baxter. 'It appears clear that Customs will continue to allow exemption on the narrowest basis possible. The orchestra is now considering taking the matter to the Court of Appeal which could ultimately lead to a hearing at the European Court of Justice. Cultural organisations who are affected by this decision should review carefully their structures to achieve the best possible tax position.'

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By AnonymousUser
26th Jul 2005 12:31

Charities and "not-for-profits" - VAT charge on admission fees
The reported High Court decision will indeed disappoint many charities and other "not-for-profit" entities. However, they should look carefully at the detailed law report to see how the decision does or does not impact on their own circumstances - and of course take expert specialist advice!

The key issue in the BSO case seems to have been that one of its trustees is a paid member of its staff (ie exceptional permission or authority exists permitting an employee to serve on its board).

For charities, the issue of paid trustees is a very important and potentially dangerous area. It remains the case that in general the law bans payments and benefits of any substance to trustees and requires trusteeship to be undertaken voluntarily. Exceptions to that remain rare rather than the norm and require specific advance authority - from the charity's own constitution or by special concession granted by the Charity Commission.

If a charity makes payments that are NOT authorised, all its trustees can be at risk of personal liability for breach of trust (regardless of the legal form of the particular charity). Innocent mistakes and misunderstandings can lead to that risk - for instance a mistaken belief that an "honoraria" is not a payment or that all that is required is the trustee in question abstaining from voting on the matter!

Cecile Gillard, Head of Charities and Voluntary Sector Department, Jordans Limited

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