Bournemouth Symphony Orchestra v Customs and Excise

For the cultural-services VAT exemption, management and administration must be assessed at the highest decision-making level. The condition contains two separate requirements. Persons with a direct or indirect interest in the results of the body’s activities must not participate in management, save on an occasional or peripheral basis. Separately, the management must remain essentially voluntary. A normal salary, without more, does not ordinarily create the relevant financial interest. Performance-related remuneration, profit extraction, or a remuneration package linked to the body’s results may do so. Whether management remains essentially voluntary is an overall question of fact and degree. A paid chief executive whose managerial and board participation is substantial, continuous and integral to the organisation may prevent the management from being essentially voluntary.

The Bournemouth Symphony Orchestra appealed against a decision of the VAT and Duties Tribunal dated 15 October 2004. The Tribunal had held that the Orchestra did not qualify for the cultural-services VAT exemption because its managing director, who was a paid employee and board member, played a significant role in central decision-making.

The appeal concerned the construction and application of the management and administration condition in Article 13A(2)(a), second indent, of the Sixth Directive and the corresponding provision in Schedule 9 to the Value Added Tax Act 1994. The central questions were whether the managing director’s salary gave him the relevant financial interest and whether his participation meant that the Orchestra was not managed and administered on an essentially voluntary basis.

1. Appeal dismissed. The Tribunal reached the correct result, although it applied the wrong reasoning.
2. The relevant management and administration is that carried out at the highest level of decision-making. It normally includes the board or equivalent governing body, and persons who in fact take final policy decisions or perform the highest supervisory functions. Purely executory staff are outside the inquiry. This approach was drawn from Commissioners of Customs and Excise v Zoological Society of London [2002] STC 521.
3. The condition imposes two distinct hurdles. First, a person with a direct or indirect interest in the results of the body’s activities must not participate in management, apart from occasional or peripheral participation. Secondly, the management must be essentially voluntary. The second question requires an overall assessment of the extent and nature of participation and the rewards received for management activity.
4. A normal, non-performance-related salary does not, without more, give an employee a financial interest in the results of the body’s activities or a financial interest in its activities. Shareholdings, income-sharing and performance-related remuneration are examples of interests likely to fall within the condition. An unusually high salary might also amount to disguised profit extraction, although that question was not decided.
5. “Essentially voluntary” is not an absolute test. Occasional or peripheral participation by paid staff, and token payments, may leave an otherwise voluntary structure essentially voluntary. The assessment is fact-sensitive and must consider the formal structure, actual functions, practical participation, the role of other decision-makers, and whether remuneration is paid for board or managerial activity.
6. The managing director’s role was real, substantial, wide-ranging and continuous. Board membership was an integral part of his paid function, rather than incidental to another role. His participation therefore prevented the Orchestra’s management from being essentially voluntary. The Tribunal’s finding that he had a significant role was not challenged, and the evidence was sufficiently complete for the High Court to decide the issue without remitting it.

• High Court (Chancery Division): Appeal from the VAT and Duties Tribunal dismissed. The Tribunal’s decision of 15 October 2004 was upheld in outcome, although its reasoning was held to be erroneous.