Bournemouth Symphony Orchestra v HM Revenue & Customs

The cultural-services VAT exemption requires a context-sensitive assessment of the body’s management and administration. Relevant managers include constitutional decision-makers at the highest level and persons who in fact take last-resort policy decisions. A proper flat-rate salary unrelated to results does not automatically create a financial interest in those results. However, a managing director whose employment requires significant participation in the board’s highest-level decision-making is not acting on an essentially voluntary basis, even if no separate fee is paid for board work. That defect can defeat exemption. Permission for a second appeal was also refused where the proposed issue depended on a possible future lease whose terms were unknown.

Two linked proceedings concerned eligibility for the cultural-services exemption under the Value Added Tax Act 1994 and article 13A of Council Directive (EEC) 77/388. Bournemouth Symphony Orchestra appealed from the VAT and Duties Tribunal, which had dismissed its appeal, and from Mann J, who dismissed its statutory appeal in [2005] EWHC 1566 (Ch). HMRC sought permission for a second appeal from Lightman J’s decision in [2006] EWHC 40 (Ch), which had allowed Longborough Festival Opera’s appeal. The central issues were who managed and administered the bodies, whether a salaried managing director had a relevant financial interest or acted on an essentially voluntary basis, and whether possible future related-party contracts affected eligibility.

Disposition. The Bournemouth Symphony Orchestra appeal was dismissed unanimously. HMRC’s application for permission to bring a second appeal in the Longborough Festival Opera proceedings was refused.

1. Statutory context. Item 2 in group 13 of schedule 9 to the Value Added Tax Act 1994 implemented the cultural-services exemption in article 13A.1(n) of the Sixth Directive. The court construed the domestic condition in the Community-law context, having regard to the purpose of the first and second indents of article 13A.2(a).
2. Relevant managers. Applying Commissioners of Customs and Excise v Zoological Society of London [2002] STC 521, relevant managers include constitutional members who direct the body at the highest level and persons who, without constitutional designation, take decisions of last resort on policy, especially financial policy, and perform higher supervisory tasks.
3. Construction of the second indent. Chadwick LJ regarded the requirement as a single condition whose elements must be assessed together. May LJ and Lloyd LJ treated the absence of financial interest and essentially voluntary management as separate but cumulative requirements. The common practical consequence was that both the management structure and the nature of any remuneration had to be examined. A salary unrelated to results did not automatically create a financial interest, but remuneration could be relevant where it was connected with participation in high-level management or operated as disguised profit extraction.
4. Application to BSO. The musician director was paid for musical work, received nothing extra for board membership, and did not undermine the essentially voluntary character of the board. The managing director was different. His employment required board membership and participation in board deliberations. His role in central decision-making was real, substantial, wide-ranging and constant. His remuneration included payment for that participation, even though no separate sum was identified. The management and administration were therefore not essentially voluntary, and the exemption was unavailable.
5. LFO proceedings. A second appeal required an important point of principle or practice, or another compelling reason, under the Access to Justice Act 1999 and CPR 52.13(2). No such issue arose on the facts. There was no current lease or equipment contract, and the effect of any future lease was better considered when its terms were known. The possibility of a lease, without more, was insufficient.

1. Court of Appeal (Civil Division). In [2006] EWCA Civ 1281, the BSO appeal was dismissed and HMRC’s application for permission to appeal in the LFO proceedings was refused.
2. High Court, Chancery Division. Mann J dismissed BSO’s appeal in [2005] EWHC 1566 (Ch). Lightman J allowed LFO’s appeal in [2006] EWHC 40 (Ch).
3. VAT and Duties Tribunal. The tribunal dismissed BSO’s appeal in [2004] UKVAT V18799 and LFO’s appeal in [2005] UKVAT V19087.