VAT ON DISTANCE LEARNING:
THE COLLEGE OF ESTATE MANAGEMENT CASE

Updated 28/8/06. This information updates s.53.4.7 in The Voluntary Sector Legal Handbook 2nd edition.
Distance learning by schools, colleges, charities etc (comprising written materials, face-to-face tuition, website learning etc) is a single exempt educational supply. This means that the provider does not have to charge VAT, but also cannot recover VAT.

In a case in 2004 the College of Estate Management argued that the supply was a single zero-rated supply of printed matter, or was a mixed supply of zero-rated printed matter and exempt education. They argued that they should be able to recover input VAT on their costs related to the zero-rated supplies. The VAT tribunal and High Court said that the distance learning was a single exempt supply, but the court of appeal said it was a mixed zero-rated and exempt supply.

Revenue & Customs appealed, and in November 2005 the House of Lords confirmed that distance learning is a single exempt supply.

Details are in VAT Business Brief 20.05. The House of Lords decision is at www.bailii.org/uk/cases/UKHL/2005/62.html.

VAT ON ADMISSION TO CULTURAL ACTIVITIES

Updated 29/3/07. This information updates s.53.4.8 in The Voluntary Sector Legal Handbook 2nd edition.
Recent decisions have significant implications for cultural organisations with paid trustees, senior employees on the board, or trustees who make loans to the organisation or agree to underwrite losses.

Admission charges to not-for-profit museums, galleries, art exhibitions, zoos, and theatrical, musical or choreographic performances of a cultural nature are exempt from VAT if the board is "managed and administered on an essentially voluntary basis by persons who do not have a financial interest in the result of activities". The rules reflect a European Court of Justice decision (in the case of London Zoo) which said that cultural organisations could be eligible for the exemption even if they had salaried managers, provided these managers do not make "high level decisions".

In the Longborough Festival Opera case, the charity's wealthy chairperson guaranteed to make good any loss incurred by the opera company on a particular production. The VAT tribunal said on 26 May 2005 that this trustee had a financial interest and the organisation was therefore not eligible for VAT exemption on its admission charges. Another factor in their decision was that the charity's governing document did not prohibit the distribution of profits to its members.

This decision was overturned by the High Court on 27 January 2006. The court reinstated the orchestra's VAT exemption for admissions, saying that VAT rules on financial interest only related to financial enrichment—not impoverishment, as the chairperson could have faced. HM Revenue & Customs appealed but the court of appeal dismissed the case on 9 October 2006.

In another case the Bournemouth Symphony Orchestra, deprived of its VAT exemption because its (paid) managing director is a trustee, lost its appeal in the court of appeal on the basis that the orchestra's management and administration were only "largely voluntary" rather than essentially voluntary. The court was unmoved by the argument that the managing director was on a fixed salary so did not have a financial interest in the results of the activity. The orchestra has been refused leave to appeal to the House of Lords.

The Court of Appeal decisions in the Bournemouth and Longborough cases are at www.bailii.org/ew/cases/EWCA/Civ/2006/1281.html. Accountants Haysmacintyre have a good summary—go to www.haysmacintyre.com and search for "Bournemouth Symphony Orchestra".
HM Revenue & Customs' revised guidance, issued on 22 March 2007, is at www.hmrc.gov.uk/briefs/vat/brief2707.htm.

VAT ON OTHER SUPPLIES BY CULTURAL CHARITIES

Updated 29/3/07. This information updates s.53.4.8 in The Voluntary Sector Legal Handbook 2nd edition.
Linked to the above cases on the status of admission charges to cultural activities: In the case of Mayflower Theatre Trust, it was clear that the ticket sales were exempt from VAT. HM Revenue & Customs and the VAT tribunal said that services such as the sale of programmes, food and drink and sponsorship rights were directly linked to the sale of tickets and were therefore also exempt—so the theatre company could not recover the input VAT it paid out in providing those services.

In March 2006 Mayflower Theatre won its case on appeal to the High Court. The court said it could not be shown that the input VAT incurred in selling programmes, food etc was incurred exclusively for the exempt supply of tickets. The theatre company could therefore recover the portion of VAT that related directly to the sale of programmes, food and other taxable supplies. The court of appeal confirmed this decision on 22 February 2007. The decision is at www.bailii.org/ew/cases/EWCA/Civ/2007/116.html.

This decision may have limited applicability because Mayflower Theatre hosts productions by other theatre companies, rather than producing its own. Details are in HMRC Business Brief 12/06. Organisations that might be affected by this decision should contact their VAT advisor.

VAT ON YACHTING

Added 25/8/05. This information updates s.53.5.1 in The Voluntary Sector Legal Handbook 2nd edition.
A sailing charity hires out its four large boats, along with crew, primarily to organisations working with young people who are disabled, have learning difficulties or are disadvantaged. Is it providing education in the art of sailing (exempt from VAT), passenger transport (zero rated) or pleasure craft (standard rated)?

The local VAT office ruled that Cirdan Sailing Trust was providing educational activities. But the VAT tribunal decided in December 2004 that three of the trust's boats were providing passenger transport, because the boats met the legal requirements for a public transport vehicle (capacity to carry 10 or more people) and because the trust was providing transport--it was the organisations who hired the boats who were providing training. The tribunal ruled that the fourth boat was a pleasure craft.

In another aspect of the case, the charity argued that their vessels were not intended or designed for recreation or pleasure, and that they therefore qualified for zero rating on maintenance and repairs to the boats. The tribunal found that even the boat that did not qualify as passenger transport was entitled to zero-rated repairs and maintenance, because it was in use as a charter boat rather than for pleasure or recreation. Revenue & Customs is appealing against this part of the decision.

The VAT tribunal decision is at www.bailii.org/uk/cases/UKVAT/2004/V18865.html. An explanation is in Business Brief 03/05 of 21 February 2005.

ZERO RATE VAT ON CONDOMS SUPPLIED TO CHARITIES

Updated 29/3/07. This information adds to s.53.5.1 in The Voluntary Sector Legal Handbook 2nd edition.
From 1 July 2006 the supply of contraceptive products has been subject to reduced rate rather than standard rate VAT. Following a decision on 22 August 2006, the supply of condoms to charities for distribution to clients is zero-rated. The decision in Pasante Healthcare Ltd v Revenue & Customs Commissioners is at www.bailii.org/uk/cases/UKVAT/2006/V19724.html.
The decision is explained at www.chilternplc.com/news/pressrelease/267.

REDUCED RATE VAT ON SOME WELFARE ADVICE AND INFORMATION

Added 28/8/06. This information adds to s.53.5.2 in The Voluntary Sector Legal Handbook 2nd edition.
From 1 July 2006 welfare charities and state-regulated private welfare institutions or agencies only have to charge VAT at reduced rate (5%) rather than standard rate for the provision of advice or information connected with or intended to promote "the physical or mental welfare of elderly, sick, distressed or disabled persons" or the care and protection of children and young persons.

The reduced rate does not apply to educational supplies that are exempt from VAT, goods (such as training videos) unless the goods are intended wholly or almost wholly for the purpose of conveying advice or information, or advice or information provided solely for the benefit of a particular information or according to an individual's personal circumstances.

The Value Added Tax (Reduced Rate) Order 2006 is at www.opsi.gov.uk/si/si2006/20061472.htm.

REDUCED RATE VAT ON CONTRACEPTIVE PRODUCTS

Added 28/8/06. This information adds to s.53.5.2 in The Voluntary Sector Legal Handbook 2nd edition.
Under the same Reduced Rate Order as welfare advice (see item above), the supply of contraceptive products is subject to reduced rate rather than standard rate VAT from 1 July 2006. The reduced rate does not apply to supplies which are already exempt from VAT, or products designed for the purpose of monitoring fertility.

Go back to contents