Curtain call for VAT
The recent decision of the First Tier Tribunal in the case of Garsington Opera gives many theatres and similar businesses...
...the opportunity to seek repayments of input tax incurred on production costs. The opera company had incurred considerable VAT on the production costs of putting on their summer opera productions, which were partly recovered using the partial exemption method in place on the basis that the tax was used in making both taxable and exempt supplies. Although the ticket income was exempt (Garsington was an ‘eligible body’ and as such the provision of cultural service were exempt under Sch 9 Group 18, Item 2 of the VAT Act 1994), taxable income was also received in the form of sponsorship, programme and CD sales, etc. The charity felt it should be entitled to recover the input tax in part to reflect the mixed use of this input tax.
HMRC disagreed, arguing that there was a direct and immediate link between the input tax on the production costs and the production of the operatic performance which resulted in exempt ticket income. The other income such as CD sales and sponsorship were all products that would not have been generated ‘but for’ the exempt performance.
Garsington argued that under the Value Added Tax Regulations 1995 (SI 1995/2519) the input tax incurred was ‘used’ or ‘to be used’ in the making of both taxable and exempt supplies. As a result it was exploited through the production to make a mixture of taxable and exempt supplies and that the production costs were not exclusively linked to the exempt supplies of tickets. The tribunal agreed and as a result the costs could be treated as residual and recovered in part under the partial exemption method used.
Garsington’s trustees had anticipated victory as far back as the 2006 accounts, where a note under ‘VAT’ states ‘that VAT amounting to £70,000 reclaimed for the period May 2004 to October 2006 is properly recoverable on the basis adopted in the submitted returns. The trustees believe there is no need to make provision for the payment of the sum involved despite the fact that HM Revenue and Customs do not agree. It is the trustees' present policy, again on the strength of legal advice advice received, to robustly argue this position with HM Revenue and Customs at tribunal and through the courts if necessary. Any future action will have regard to the best use of charitable funds and any evolution of advice received.’
Rob Warne, VAT partner at accountants Horwath Clark Whitehill comments :‘Charities should take this opportunity to revisit their fully non recoverable input tax codes to see, in the light of this case, whether there is the possibility that these costs can now be transferred back into residual recovery with the additional possibility of going back three years.’
Garsington Opera Ltd v Revenue & Customs [2009] UKFTT 77 (TC) (28 April 2009)
www.bailii.org/uk/cases/UKFTT/TC/2009/TC00045.html
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from
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