Dramatic win for HMRC in live theatre VAT case

This first tier tribunal (FTT) case considered the VAT cultural exemption and whether it applied to live shows performed elsewhere and shown on screen.

VATA1994, Schedule 9, Group 13, Item 2(a) exempts “the supply by an eligible body of a right of admission to a theatrical, musical or choreographic performance of a cultural nature” from VAT. This includes concerts, plays, musicals and similar shows.

Derby Quad is a venue that provides a visual arts and media centre, art exhibition and workshops, cinema, café bar, corporate room hire and training. It screened various plays performed by the National Theatre and The Royal Shakespeare Company. Some of these shows were live, screened as the show was being performed. Some were repeat screenings of previously recorded live events, known as Encore performances.

HMRC argued that admission to such screenings did not fall within the cultural exemption and so should be subject to VAT at 20%.

Arguments for exemption

Representatives of Derby Quad explained that the experience for one of these screenings is very different from going to the cinema. They provide an enhanced customer experience, and admission prices are more expensive than for general cinema screenings.

Derby Quad believes the evidence as to the nature of the performance is clear from the audience reaction. Live events such as these are of artistic merit. They communicate the atmosphere of live theatre and capture the sense of a live performance, which enhances the audience experience.

In short, Derby Quad argued that the broadcast of live events is an extension of theatre through digital innovation and new technology. Just because technology has changed since the law was written, does not mean this type of admission should not fall within the exemption.

The earlier Chichester case considered the relevance of the word “performance” in the legislation and said: “The implicit notion is that it refers to current or live performance.” There was no reference in that case to geographic location being relevant.

A time and a place

HMRC believes that there is a temporal and geographic requirement in order for there to be a “performance”. While the live shows include the temporal link, the geographic element is missing.

Exemptions are an exception to the VAT base and so must be interpreted strictly.

It is not sufficient that this admission fills the same social purpose as admission to a theatre show.

HMRC says that the phrase “theatrical performance” refers to actual live performance in a theatre or similar venue, rather than a recording of it. They argue that there is a subtle difference between being “admitted to” something and “admitted to see” something.

The supplies are tantamount to cinematic screenings and are not “theatrical performances”. Theatrical pertains to appearing in a theatre, rather than merely being dramatic.

In addition, at screenings, there is no live feedback to the cast, in that they cannot see or hear the audience reaction.

Always speaking

The principle of “always speaking” requires us to have regard to the state of affairs existing at the time the legislation was written. When a new situation emerges, the courts have to consider whether it falls within the original intention of Parliament. Any extension must be interpreted narrowly.

A statute should be interpreted taking into account changes that have occurred since it was enacted, for example, technological developments.

HMRC argued that the same genus of facts does not apply in this case. If the government wishes to expand the exemption, this needs to be done via legislation, rather than changing the interpretation of legislation that already exists.

Theatrical feedback

Firstly, the FTT considered the Encore performances, where a recording was screened after the live event had taken place. It concluded that these were “in no understandable interpretation” live events. There was nothing live about them as they were provided well after the live event had taken place. As such, they did not fall within the exemption.

The FTT then turned to consider events screened as the live performance took place. It did not conclude that a live event was the same as a cinema screening, but, nevertheless, did not consider that it fully met the natural and ordinary meaning of the words of a “theatrical performance”.

A key point was that the actors cannot hear the audience, and there was no audience and performer interaction. The tribunal saw this as a crucial distinction and considered these interactions, which require the performer and audience to be in the same place, critical to a theatrical performance.

In response to dictionary definitions of performance, the tribunal found “there is an inherent sense that place is essential and despite technological advances that may seek to recreate that, it cannot… provide the interaction that is present in actually being in the same theatre or place.”

The conclusion was, therefore, that both live screenings, and recordings, were excluded from the exemption and so standard rated.