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Royal Opera House

VAT: Final curtain for Royal Opera House dispute


A three-act musical VAT extravaganza concerning partial exemption looks to have finally ended in the Court of Appeal. Neil Warren reviews the performance.

24th Jun 2021
Independent VAT Consultant
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Act One – 2019

“They've burst your pretty balloon

And taken the moon away.”

HMRC was shocked by the decision in the first tier tribunal (TC07157) that input tax on the costs of hiring top quality productions was partly linked to ice cream and catering sales (standard rated) at the Royal Opera House, rather than only being linked to the ticket sales relevant to the shows (exempt). The partial exemption calculations meant an input tax windfall of £532,069 for the charity between 2011 and 2012.

The taxpayer argued that better quality and more expensive productions generated increased catering sales and therefore better shows in the future. The FTT agreed – the input tax on production costs was ‘residual’ for partial exemption purposes rather than ‘exempt’ and could be partly claimed with the standard method of calculation based on sales.

Act Two - 2020

“It's time to wind up the masquerade

Just make your mind up the piper must be paid.”

The Upper Tribunal concluded that the FTT had got the chorus line wrong and also sang badly out of tune. The conductor, sorry, judge, decided that the only ‘direct and immediate’ input tax link was between the production costs and the exempt ticket sales. There was a positive impact on the VATable catering sales ie, bigger shows meant increased audiences and more food and drink was sold, but this was not sufficient to generate a clear link for partial exemption purposes. HMRC’s appeal was allowed.

The Interval

We will now have a fifteen-minute interval before The Finale, where tea, coffee and cucumber sandwiches will be served in the auditorium. The refreshments are subject to VAT, of course, unless the sandwiches are consumed off-site, and will then be zero-rated.

Act Three - 2021: The Finale

“Now you must wake up, all dreams must end

Take off your makeup, the party's over

It's all over, my friend.”

The final act in the Court of Appeal produced a further tragedy for the charity – another win for HMRC (Royal Opera House Covent Garden Foundation [2021] EWCA Civ 910).

The three musical directors, two Lords and a Lady, agreed with the UT’s analysis about the input tax issues. However, there was a memorable line about our favourite tax:

“The principles of VAT law can appear more obscure than they need, partly because some of the most important terms are unfamiliar to all but the specialists.”

Many AccountingWEB members will agree with that comment!

There was an interesting view put forward by HMRC that if the tickets had been free, then the argument that the production costs were funded by the catering sales would have been stronger ie: a direct link for input tax purposes. But this analysis was irrelevant.


For music lovers, I have quoted lines from the song called ‘The Party’s Over,’ which was first introduced into the 1956 musical comedy Bells Are Ringing. For VAT lovers, the Royal Opera House trilogy has again demonstrated how even the basic principles of our favourite tax can be looked at differently by senior judges and professionals. We all interpret the music differently.

Finally, I quote the late opera singer Maria Callas who famously commented: “An opera starts long before the curtain goes up and ends long after it has come down.”

The VAT curtain has come down for Royal Opera House but I suspect it won’t be long before there is another partial exemption dispute wending its way through the tribunal system. Questa e la fine... This is the end - for now.

Replies (1)

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By Malcolm McFarlin
28th Jun 2021 09:38

It seems to me that even when an appellant 'wins' in the FTT -he often loses in the UTT or Supreme Court. A tax barrister will often, come up with, a point of law, but Appellants are liable to costs in the UTT and upwards. Costs are only payable in the FTT in 'complex cases' with the Appellant being given the option to opt out of costs. It would be a foolish appellant who didn't opt out of costs in the FTT.
An expensive game to take on HMRC who have very deep pockets. It wouldn't surprise me if the costs, for both sides, have outweighed the VAT assessment.

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