Birmingham Hippodrome Theatre Trust Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 February 2011 |
| Neutral Citation | [2011] UKFTT 117 (TC) |
| Date | 15 February 2011 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00993
[2011] UKFTT 117 (TC)
Judge Peter Kempster (Chairman), Ms Helen Folorunso
Mr David Milne QC and Mr David Yates, instructed by Baker Tilly, for the Appellant
Miss Philippa Whipple QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Claim for repayment of overpaid output tax - Cultural services exemption - Three year cap - Whether claim constituted an "abusive claim" (No) - Whether claim was subject to reduction under Value Added Tax Act 1994 section 81 subsec-or-para 3As 81(3A) VATA 1994 (Yes) - Appeal dismissed
CONTENTS
| Paragraphs | |
| 1-24 | Background |
| 3-13 The cultural services exemption | |
| 14-24 The three year cap | |
| 25-35 | The Facts |
| 36-58 | Legal arguments |
| 37-43 HMRC's case on the "abusive claim" argument | |
| 44-45 The Theatre's case on the "abusive claim" argument | |
| 46-51 Section 81(3A) | |
| 52-54 HMRC's case on the s 81(3A) argument | |
| 55-57 The Theatre's case on the s 81(3A) argument | |
| 58 Other points | |
| 59-78 | Consideration and conclusions |
| 59-67 The "abusive claim" argument | |
| 68-78 The s 81(3A) argument | |
| 79 | Decision |
| 80-88 | Costs |
| 89-90 | Appeals |
1. The Appellant ("the Theatre") is a Registered Charity. It operates the Birmingham Hippodrome Theatre and runs a programme of community outreach services. Following a series of events described in this decision notice, it became apparent that the Theatre had overpaid VAT in respect of the period January 1990 to May 1996 inclusive. The Respondents ("HMRC") rejected the Theatre's repayment claim and the Theatre has appealed that decision to this Tribunal.
2. Before setting out the facts of this case we describe the relevant legal background which comprises two parallel matters: the cultural services exemption and the three year cap.
3. In this decision notice references to EC directives are to those extant at the time of the relevant transactions (rather than the principal VAT directive 2006/112/EC which came into force on 1 January 2007). Also, the Respondents are referred to as "HMRC", which shall include their predecessor department HM Customs & Excise.
4. The provisions relating to the general system of VAT and a trader's right to deduct VAT borne on his cost components are contained in Article 2 of EC Council Directive 67/227 (the First Directive) and Article 17 of EC Council Directive 77/388 (the Sixth Directive). The relevant provisions of UK domestic law are Value Added Tax Act 1994 section 24 section 26sections 24 and 26 of the VAT Act 1994 ("VATA"). The principle can in relation to this appeal be stated uncontroversially as: a trader who makes taxable output supplies is entitled to deduct his input tax; a trader who makes exempt output supplies is not entitled to deduct his input tax; and a trader who makes a mix of taxable and exempt output supplies (a partially exempt trader) is entitled to deduct only that part of his input tax that is attributable to his taxable output supplies.
5. Article 13.A(1) of the Sixth Directive states (so far as relevant):
Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: …
(n) certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned; …
6. The UK should have implemented that exemption no later than 1 January 1990 (pursuant to Article 1 of Council Directive 89/465/EEC) but, in breach of its Community law obligations, it took no action until 1996.
7. With effect from 1 June 1996 the VAT (Cultural Services) Order 1996 (SI 1996/1256) inserted Value Added Tax Act 1994 schedule 9 group 13Group 13 into Schedule 9 to the VAT Act 1994 ("VATA"), which states (so far as relevant):
GROUP 13 - CULTURAL SERVICES ETC
Item No
…
2 The supply by an eligible body of a right of admission to-
-
(a) a museum, gallery, art exhibition or zoo; or
-
(b) a theatrical, musical or choreographic performance of a cultural nature.
NOTES
…
(2) For the purposes of item 2 "eligible body" means any body (other than a public body) which-
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(a) is precluded from distributing, and does not distribute, any profit it makes;
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(b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and
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(c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.
8. Also in 1996 HMRC published Notice 701/47 ("the 1996 Notice") setting out their explanation of the new Group 13. Section 4 of the 1996 Notice set out HMRC's understanding of the meaning of the restriction in Note 2 (c) to Group 13, and advised that payment of any person involved in the general management and administration of a cultural body would disqualify that organisation from being an eligible body within Group 13 - and thus admission ticket sales would continue to be standard rated for VAT purposes.
9. Section 1 of the 1996 Notice explained:
… the exemption came into force on 1 June 1996. However in some limited circumstances it may be possible to backdate the exemption to 1 January 1990 and claim a refund of VAT for the period 1 January 1990 to 31 May 1996. These arrangements are explained in section 7 and Annex C.
That facility arose because of the direct applicability of the exemption conferred by Article 13 of the Sixth Directive.
10. Section 7 of the 1996 Notice explained, in relation to such retrospective claims:
Is it necessary to recalculate the input VAT for the period of claim based on the newly exempt admission charges?
Yes. Any claim to repayment of output tax for quarterly periods must be reduced by the amounts of any related input VAT, which would not have been deductible, if exemption had been in force during those periods.
11. Annex C to the 1996 Notice gave more information on "Repayment claims arising from backdating of the exemption" (as the 1996 Notice is no longer in force and thus not generally available, the text of Annex C is set out in full):
How far back can I claim repayment of VAT on cultural services and fund-raising activities which became exempt from 1 June 1996?
1. You can recalculate your VAT liability as if exemption had come into effect from 1 January 1990.
When calculating the amount of overpaid VAT, do I have to take account of any partial exemption restriction which would have applied if exemption had been introduced from 1 January 1990?
2. Yes. Any repayments of output VAT for quarterly periods must be reduced by the amount of any related input VAT for the corresponding periods which would not have been deductible, if exemption had been in force during those periods. You will need to calculate not only the amount of output VAT which should not have been charged but also the amount of input VAT which you would not have been able to deduct if exemption had been in force.
3. This will put you in the position you would have been in if exemption had been introduced from 1 January 1990, except where this would result in your owing VAT to Customs.
4. You may wish to know that the partial exemption arrangements changed on 1 April 1992 and 1 December 1994. If you need information concerning partial exemption arrangements between 1 January 1999 and 31 May 1996 you should contact your local VAT Business Advice Centre for details.
Do I have to recalculate the VAT liability for the period 1 January 1990 to 31 May 1996?
5. Only if you wish to claim any repayment for that period.
6. If you do not wish to submit a repayment claim or if the net result of your recalculation is that you owe VAT to Customs, no backdating will be required.
Do I have to recalculate the VAT liability on a quarter by quarter basis or can I prepare a single claim covering the whole of the period for which repayment is due?
7. Irrespective of whether partial exemption restrictions apply, Customs will have to identify the amount of the repayments for each quarter in order to calculate the interest due (see paragraph 12 below).
Can I select the quarterly periods between 1 January 1990 and 31 May 1996 in respect of which I wish to reclaim VAT and ignore those periods where the recalculations would show a net amount of VAT owing to Customs?
8. No, you cannot pick and choose; any repayment claim must cover a continuous period up to 31 May 1996.
Can I choose a starting date after 1 January 1990 for any repayment claim?
9. Yes, but the repayment claim then has to be for a continuous period from the date you choose up to 31 May 1996.
Can cultural bodies deregister from VAT with effect from 1 January 1990, where exemption from that date would have rendered registration unnecessary?
10. No. If you make taxable supplies in addition to exempt supplies retrospective deregistration is not allowed. Deregistration can only be allowed from a current date if you can satisfy Customs that the value of your taxable supplies in the next twelve months will not exceed £45,000. However, you can submit your repayment claim to the VAT office in the normal way.
Can cultural bodies no longer registered for VAT claim repayment?
11. Yes, provided you were registered for VAT at some time between 1 January 1990 and 31 May 1996, in which case you should send any repayment claim to the VAT office with which you were registered.
Will the repayments be...
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