Orchestra loses VAT battle with the taxman

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The Bournemouth Symphony Orchestra has failed in a battle with the taxman over whether its ticket sales should be VAT-exempt, a ruling which will lose the organisation some £50,000 a year.

The orchestra, which has a turnover of £6m a year, hoped to persuade the Court of Appeal yesterday that it qualified as a voluntary organisation. But three judges upheld a decision made in the High Court last year that the fact that the orchestra had a paid executive on its board ruled it out of the cultural exemption from VAT that exists for voluntary organisations.

If the orchestra had won the case, it would have benefited from between £30,000 and £50,000 a year, with an immediate windfall of around £250,000 because of the time spent fighting the case.

The managing director, Michael Henson, who sits on its board, said yesterday that the orchestra was considering a further appeal to the House of Lords.

"I think in all the major arts organisations there are paid staff because of the level of expertise needed to make complex companies operate," Mr Henson said.

"The Charities Commission have clearly said they would like to have properly managed charities and that people should be paid the proper rates. This is a lead case in relation to VAT."

The orchestra had decided to test the rules because its work is essentially cultural and not for profit despite Mr Henson, who is paid, sitting on its board.

However, Mr Justice Mann ruled in the High Court that the orchestra and its work was not "essentially voluntary" because Mr Henson was paid for his work on the board.

The orchestra said that the ruling went against the underlying principle of the cultural exemption under VAT tax law introduced in 1996. They warned that many arts organisations would be affected by the decision.

A spokesman for HM Revenue and Customs said the Court of Appeal had confirmed HMRC's policy position and interpretation of the law.

"The conditions for qualifying for the VAT exemption are laid down in legislation, and HMRC will continue to apply them objectively and consistently in all cases," he said.

A test case at the European Court in 2002 had suggested that ticket money - in that case for London Zoo - could be treated as free of VAT. The ruling in Europe allowed many charities to reclaim VAT going back years.

But in 2003, Customs issued a policy stating that as long as one person who was paid for managerial or administrative work or had a financial interest in the company was either a board member or was in possession of power delegated from the board, the exemption could not apply.

The Bournemouth Symphony Orchestra was supported at its hearing by members of the Longborough Festival Opera, which successfully fought a similar VAT battle with the taxman after an unpaid director offered to make good any losses from a costly production.

HMRC in that case originally withdrew the VAT exemption on the grounds that such a financial liability gave the director a "financial interest" in the opera.

Free admission to all the national museums and galleries was held up for a while because of the taxman's insistence - putting the Revenue at odds with the Department for Culture, Media and Sport policy - that it would not allow museums and galleries to recover VAT if visitors went free.