Transcript Tax, Gift Aid & VAT

VAT & Cultural Services, & VAT &
Fundraising
Bill Lewis
8 November 2012
VAT & Cultural Services
Admission charges by a public body or
an “eligible body” to:
 A museum, gallery, art exhibition or
zoo, or
 A theatrical, musical, or
choreographic performance of a
cultural nature
Are exempt from VAT
What is a public body?
 Local authorities, government
departments, and certain non-departmental
public bodies listed in the Cabinet Office
publication “Public Bodies”.
 But – VAT exemption does not apply if the
public body will distort competition to the
disadvantage of a commercial provider, or
enters into a joint venture with a
commercial provider.
What is an eligible body?
 Precluded from and does not distribute
profits
 Applies profits from admission charges to
continuance and improvement of facilities
for the paying public
 Is managed and administered on a
voluntary basis
HMRC Historic View
 If there were paid managerial and
administrative staff then an organisation
was not run voluntarily.
.
HMRC Revised View:
 But HMRC lost this argument in a case
against London zoo which determined that
“managed and administered on a voluntary
basis” meant those who ran the
organisation at the highest level,
particularly re policy and financial matters
Provided trustees/management committee
are unpaid then the organisation is run
voluntarily.
 This means that persons who participate in
the highest management and
administration must not have a direct
financial interest in the results of the
organisation – whether by remuneration,
salary, or any other financial interest.
 So if there is a paid trustee or paid member
of the senior management team the
exemption does not apply.
Bournemouth Symphony Orchestra Case
 But, this case showed that for a person to
have a direct financial interest in an
organisation they need to be paid above
the market rate, or paid a profit related
bonus for their work in the direction of the
cultural body’s activities
To VAT Exempt or Not VAT exempt?
 Charitable cultural service providers can
choose to be VAT exempt or not.
 VAT exemption can be broken by having a
paid trustee – e.g. Artistic director who
receives a profit related bonus
 Whether to break the exemption depends
on income levels and costs. E.g. Might be
worthwhile if there are major capital works
and you want to recover VAT.
Other considerations
 VAT exemption only applies to entry fees.
Other activity still subject to VAT – e.g.
 Fees paid for when you tour productions.
 Tickets you sell as agents for others
productions
VAT Incurred on Costs
 VAT exemption restricts your ability to
recover VAT incurred on your costs. If you
have other VAT taxable income you can
partially recover VAT incurred on your
costs. HMRC will argue that VAT ticket
sales means that VAT incurred on the cost
of productions cannot be recovered. NB
Mayflower Theatre case.
Tax, VAT & Corporate Sponsors
 Pure donations are outside the scope of
VAT and not subject to tax in the hands of
the charity – but how often is a payment
from a corporate supporter a pure
donation?
Tax, VAT & Corporate Sponsors
For example corporate might want:
 Website links
 Display of logo and Corporate Colours
 Descriptions/endorsements of its products
and services
 Use of charity’s mailing list
 Right to sell goods on the charity’s
premises/website
Tax, VAT & Corporate Sponsors
Other examples of what a corporate might
want:
 Volunteering experiences for staff
 Staff training
Can you think of other examples?
Tax, VAT & Corporate Sponsors
Providing such benefits to corporate
supporters in return for their support will
mean that their donations are treated as
fees subject to tax and VAT.
What to do?
 Split payment between donation to charity
and fee subject to VAT to trading company.
Fee is commercial value of sponsorship.
 Or fee of 10% of sponsorship is usually
safe if no known commercial value.
 Smaller fee if sponsorship huge but benefit
to sponsor small.
 Bigger fee if benefits huge
Know Your Corporate
 Bear in mind that most corporate
supporters can recover any VAT you
charge them, but those whose services are
VAT exempt cannot – in particular banks
and insurers. Charging VAT hurts them
 On a practical level many CSR employees
of big companies see VAT as an extra cost
when in most cases the company can
recover it. Have them talk to their Finance
people.
Examples to discuss
 Soft drink company’s support of a childrens
charity in return for various benefits.
 Name and logo of corporate appearing in
annual report of charity and nothing else
 Website links between charity and
corporate and nothing else
How can I have my cake and eat it?
Alternative solution. Corporate makes a
pure and unconditional donation to the
charity, which without any obligation to do
so gives publicity etc to the corporate.
Nothing in the grant agreement or
correspondence or emails between charity
and corporate indicates that publicity must
be given. Payment remains a tax and VAT
free donation. BE VERY CAREFUL WITH
THIS ROUTE.
Bill Lewis
Tax Consultant
Bates Wells & Braithwaite London LLP
2 – 6 Cannon Street
London EC4M 6YH
Tel: 020 7551 7777
E-mail: [email protected]