The Upper Tribunal (tax tribunal) has held (Loughborough Students' Union v HMRC (2013)) that the holding of balls by a students' union, was not an exempt supply under the exemption for cultural services. This was because the student union’s activities were not managed and administered on an essentially voluntary basis due to its sabbatical officers being salaried.
However, the Tribunal also questioned whether the separate UK exemption for fund-raising events by charities was compatible with the EU fund-raising exemption on which the UK rules are based, and remitted this issue to the First-tier Tribunal (FTT).
If the FTT decides that the restrictions attaching to the UK exemption (namely that the event must be for the primary purpose of raising money and be promoted as such) are contrary to EU law, they would be invalid.
This could be welcome news for charities and others as this exemption may become more freely available than the UK rules currently allow.
The appellant was a VAT registered student union. It was also a charity.
The student union regularly held balls for students. Although the proceeds from the balls, which made money, went to the student union, and this was made clear in the related publicity, the publicity concentrated on promoting the acts appearing.
Day to day management of the affairs of the student union, including its finances, was in the hands of an executive committee which included nine sabbatical officers, who had contracts of employment and were paid a salary.
Although the student union initially accounted for VAT on the proceeds from the balls it subsequently claimed repayment of that VAT on the basis that the supplies were exempt under either the cultural exemption or the fund-raising exemption. HMRC refused the claim and the FTT dismissed the student union’s appeal.
Group 13 of Schedule 9 to the Value Added Tax Act 1994 (VATA 1994) allows an "eligible body" to not charge VAT on ticket sales to a "theatrical, musical or choreographic performance of a cultural nature".
Eligible body means "any body (other than a public body) that:
(a) is precluded from distributing, and does not distribute, any profit it makes;
(b) applies any profits made from [such] supplies to the continuance or improvement of the facilities made available by means of the supplies; and
(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities."
The relevant EU fund-raising exemption exempts from VAT supplies by organisations in connection with fund-raising events organised exclusively for their own benefit as long as this exemption is not likely to provide distortion of competition. EU member states are given some discretion to introduce restrictions to this exemption.
This has been implemented in the UK by Group 12 of Schedule 9 to VATA 1994, which (among other things) exempts from VAT:
"The supply of goods and services by a charity in connection with an event:
(a) that is organised for charitable purposes by a charity or jointly by more than one charity;
(b) whose primary purpose is the raising of money; and
(c) that is promoted as being primarily for the raising of money."
The Upper Tribunal noted that the sabbatical officers were paid more than a nominal sum and played a significant part in making decisions of last resort concerning the appellant's policies and in carrying out higher supervisory tasks. Therefore, the tribunal held that the FTT had been right to conclude on its findings of fact that the appellant was not managed and administered on an essentially voluntary basis. This meant that the cultural exemption did not apply.
However, the Upper Tribunal also held that the FTT had applied the conditions of the UK fund-raising exemption without considering whether they were compatible with the EU fund-raising exemption. The UK fund-raising exemption required the relevant event to be for the primary purpose of raising money and to be promoted as being primarily to raise money, whereas the EU fund-raising exemption did not.
Without wanting to be too prescriptive, the Upper Tribunal suggested that in order to decide whether the UK provisions were lawful, it was necessary for the FTT to determine:
- Whether exempting the balls from VAT would give rise to distortion of competition. This involved determining whether the balls and commercial events were sufficiently similar (from the consumers' perspective) that they had to be regarded as being in competition with each other. This was to be determined by reference to the nature of the activity and without regard to the particular market of the supply. Actual competition was not required provided that potential competition was a real, and not merely hypothetical, possibility.
- If so, whether the conditions in the UK fund-raising exemption made the exemption of such events unlikely to cause distortion of competition. This involved considering whether the effect of the conditions was to remove or reduce competition between fund-raising events and comparable commercial events.