Revenue and Customs Brief 27/07
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Issued 22 March 2007
VAT: Cultural exemption – clarification of ‘direct or indirect financial
interest’ [Note 2 (c) to Group 13 of Schedule 9 to the VAT Act 1994]
This Brief provides guidelines, in the light of recent Court of Appeal
Judgments in the cases of Bournemouth Symphony Orchestra (C3/2005/1681) and
Longborough Festival Opera (C3/2006/0369), on how to interpret the term ‘direct
or indirect financial interest’. This is for the purpose of the exemption for
cultural services contained in Group 13 of Schedule 9 to the VAT Act 1994. The
term is relevant because one of the conditions for exemption for services
provided by an ‘eligible body’ under Item 2 of that Group is that the body ‘is
managed and administered on a voluntary basis by persons who have no direct or
indirect financial interest in its activities’ (Note 2(c) refers).
This brief supersedes the advice given on this topic in paragraphs 4.9 to
4.11 of VAT Notice 701/47 Culture and paragraphs 2.2 and 2.3 of section 2 of
chapter 28 of V1-7 (HMRC guidance). Update 1 to VAT Notice 701/47 will be
available on our website shortly.
The key change from existing guidance is that any direct or indirect
financial interest only affects entitlement to exemption if it is actual, not
potential. It is now our view that a person who is managing and administering
the cultural body can be seen to have a direct or indirect financial interest in
its activities only when:
- the person receives any payments for services supplied to the cultural
body above the market rate, paid as routine overheads, or receives any
payments which are profit-related (whether below, at or above market rates);
- there is a link between the payments and the person’s participation in the
direction of the cultural body’s activities.
This means that payments to individuals for services of managing and
administering the body are not financial interests if:
- they are allowed by the constitution;
- the recipient is excluded from any decision-making regarding the award of
any contract to themselves;
- the payments are not above market rates; and
- are not linked to profits.
There is no financial interest where the only potential is for a financial
loss – for example, where a risk is underwritten or guaranteed – so that the
guarantor only stands to lose money and not gain money as a result.
It is not possible to give exhaustive guidance to cover every eventuality,
and the advice given here is intended as a general guideline only.
For further information and advice, please contact HM Revenue & Customs’
National Advice Service.
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Article Published/Sorted/Amended on Scopulus 2007-03-22 22:18:03 in Tax Articles