We are a VAT registered not-for-profit organisation and our accountants run a review last year and confirmed we don't qualify for cultural exemption. We organise guided tours for schools in our museum and also educational workshops with our Education Manager. Since I've started working here recently, I noticed that we charge VAT on these. I thought this should be still withing VAT scope, but VAT exempt as per Education and vocational training (VAT Notice 701/30) https://www.gov.uk/guidance/vat-on-education-and-vocational-training-not...
What are your thoughts?
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Replies (7)
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The exemption for supplies under either Cultural Services or Education depends on the provider being an 'eligible body.' The definitions of eligible body are different for each exemption, but it is possible for one organisation to be exempt under both categories.
Whether you are depends on the wording of your Constitution. Which you can change, of course, if you would prefer to be exempt or taxable.
Having established the eligible body question you can then ask whether the supplies are educational:
- the guided tours might be, if directly related to school curriculum;
- the workshops are more likely to be, as the definition of education is quite wide.
Sorry, more questions than answers. That is VAT for you!
I've checked on companies house and the NMMS is listed as a Scottish company limited by guarantee without share capital and a quick look at the Articles (2020) indicates that no officers or Trustees are entitled to any proceeds.
So on that (initial) basis, it does look like you would meet the definition of being an eligible body and then, as per the response from Les, will come down to whether tours and workshops are deemed to be educational and like Les, the workshops are possibly eligible, tours maybe/maybe not, depends on the purpose (ie, school curriculum, etc).
Do you know why you do not qualify for cultural exemption? What explanation did the Accountants give?
Les is an expert in charities and not for profit, it's probably worth checking out. Why?
Because if you are eligible for exemption and you are charging VAT, then that has knock on effects, presumably you are reclaiming all your input tax at present on the basis everything you do is plus VAT, if we're saying you should have been exempt because of your Articles, then you may have to repay all your previously reclaimed input tax.
As Les has stated, it may be that you don't want to be exempt and have measures in place to ensure you are not exempt, such as having salaried board members, distributing profits, etc.
VAT ... doncha just love it?
Actually I guess that Les and you do - but reading that lot reminded me of being 5 years old and trying to go UP the helter-skelter, based on pure determination (and without a prayer of success)!
Thank you for your thorough investigation - I hope I don't owe you money for that. ;)
As set out in VAT Notice 701/47, the conditions for cultural exemption are as follows:
• be a non-profit making organisation,
• apply any profits made from exempt admission fees under this provision to the continuance or improvement of the facilities,
• be managed and administered on an essentially voluntary basis, and by people who have no direct or indirect financial interest in the activities of the body.
Accountants that did a review, concluded that conditions 1 & 2 of cultural exemption are satisfied indeed, which matches your thorough investigation of our constitution.
However as NMM’s CEO is employed by contract, is paid a competitive salary and sits on the board of directors which entitles him/her to a voting right, they concluded that condition 3 of the cultural exemption is not met.
To be fair to the OP, sometimes things don't make sense and closure can only be achieved by understanding the detail.
Often in tax we want to claim a relief and so spend all our time to ensure we meet the conditions, whereas here, effort has been expended to ensure the conditions are not met. Perfectly legal.
Apologies for not getting back to this thread sooner.
Okay, so by having a salaried CEO it does usually mean condition 3 is broken. If you read my earlier response, you will see my last paragraph eludes to having a salaried board might be a deliberate action to ensure exemption doesn't apply.
As condition 3 is not met, then you cannot use the exemption. I suspect this is deliberate so as to ensure the organisation can reclaim all of its input tax and avoid partial exemption territory.
None of this is illegal, any organisation can choose to meet or not meet the conditions. Whether that is by salaried boards or by having a profit distribution clause either way, conditions are not met.