Hallé Concerts Society
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 April 2016 |
| Neutral Citation | [2016] UKFTT 294 (TC) |
| Date | 27 April 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Cannan, Mr Noel Barrett
Mr Frank Mitchell of counsel instructed by PricewaterhouseCoopers Legal LLP appeared for the Appellant
Mr Richard Chapman of counsel instructed by the General Counsel and Solicitor of HM Revenue & Customs appeared for the Respondents
Value added tax – Company limited by guarantee – Whether supplies to members were outside the scope of VAT – Single supply or multiple supplies – Nature of supplies – Exemption under Sixth Directive (77/388/EEC), art. 13(A)(1)(l) – Supplies made by an organisation of a philanthropic nature – Appeal allowed.
[1] The Hallé Orchestra was founded in Manchester in 1858 by Sir Charles Hallé. With the support of wealthy individuals it continued until his death in 1895. In 1898 the Hallé Concerts Society (“the Society”) was incorporated as a company limited by guarantee. The Society has operated the Hallé Orchestra ever since.
[2] The Society is a members' society and members pay annual subscriptions with various rights and benefits being associated with membership. One of the benefits associated with membership is the right to priority booking, in advance of tickets going on open sale to the general public.
[3] This appeal commenced in 1999 and challenged a decision that concert admission charges should properly have been treated as exempt from VAT. Challenges against subsequent decisions were consolidated in the present appeal and concerned the VAT treatment of annual subscriptions paid by members of the Society. By the date of hearing the parties had agreed the position in relation to admission charges. We are therefore only concerned with the VAT treatment of members' subscriptions.
[4] The issues arise in the context of claims for repayment of VAT by the Society which have been refused by HMRC. These are claims for repayment of output tax which the Society accounted for in relation to members' subscriptions. The claims in dispute are for £154,962 in the period 1 April 1973 to 31 May 1999 and £18,204 in the period 1 March 2001 to 30 November 2003.
[5] The grounds of appeal and the issues which arise in the appeal were helpfully summarised in both parties' skeleton arguments and are broadly as follows:
1) The Appellant contends that members' subscriptions did not amount to consideration for any supply by the Society and were outside the scope of VAT.
2) If any of the rights and benefits associated with membership were within the scope of VAT, both parties contend that the Society made a single composite supply rather than multiple supplies. The Appellant contends that the single supply should be characterised as a supply of membership which would be outside the scope of VAT. The Respondents contend that it should be characterised as a supply of priority booking rights which is within the scope of VAT.
3) If all aspects of the rights and benefits of membership are within the scope of VAT, the Appellant contends that there is either a single supply which is exempt by virtue of the “philanthropic exemption” or there are multiple supplies which individually fall with within the philanthropic exemption, the cultural exemption or are zero rated publications.
[6] The cultural exemption applies to certain supplies in relation to cultural services and performances of a cultural nature. It is the subject of a reference to the Court of Justice of the European Union (“CJEU”) by the Court of Appeal following R & C Commrs v British Film Institute VAT[2014] BVC 534. Both parties agreed that we should put the cultural exemption to one side for the purposes of the hearing.
[7] The evidence before us was primarily set out in two witness statements of Mr John Summers who has been the chief executive of the Society since 1999. Those witness statements exhibited a substantial amount of documentation. We also had witness statements from Mrs Penelope Moore and Mr Terence Moore who have both been members of the Society for many years. The evidence was not challenged by HMRC and therefore we did not hear any oral evidence. We are grateful for the extremely helpful way in which the evidence was presented.
[8] We set out below our findings of fact based on the evidence before us. The issues before us are issues of law or depend in large measure on our analysis of the facts. We therefore deal with those issues and the submissions of counsel in the discussion which follows our findings of fact.
[9] Since 1963 the Society has been a registered charity and has twelve trustees. The Society's charitable objects centre upon the advancement of musical education for the benefit of the public. The Society has a separate board of directors on which the trustees are non-executive members. Three of the trustees are effectively nominated by the Association of Greater Manchester Authorities (“AGMA”) and nine are elected by the Society members.
[10] The Society's objects were set out in its Memorandum of Association dated 28 June 1899 as follows:
To give and arrange concerts and generally to promote the study, practice, and knowledge of the art of music in the United Kingdom and elsewhere.
[11] On 9 October 1990 the Society's objects were amended as follows:
The object of the Society is the promotion of the study practice and knowledge of the art of music in the United Kingdom and elsewhere by the giving and arrangement of concerts and such other means as is thought fit …
[12] It is notable that the objects refer to music in general, and not to classical music or orchestral music.
[13] The Society receives public funding from the Arts Council and AGMA. Funding from the Arts Council is conditional on the Society demonstrating a public benefit and the Society is required to make annual applications which include an outline programme of performances for the coming year. Funding received from AGMA is more closely linked to community work carried out by the Society.
[14] The Society also receives funding from the Charles Hallé Foundation and the Hallé Endowment Trust. The Charles Hallé Foundation operates a patronage scheme through which patrons donate money for the benefit of the Society. It also receives donations from other educational foundations. The Hallé Endowment Trust is itself a charitable trust established to assist the Society in the performance of its objects. Its funds are held on permanent endowment and the income is used to support the Society. Funding for the Society also comes from sponsors, concert income, programmes, membership subscriptions and investment income.
[15] The Society's accounts for year ended 31 March 1974 show concert income including VAT of £295,865 and a total income net of VAT of £283,983. Total expenditure, principally orchestra costs, was £525,108. The Society therefore had a deficit of £241,125 which was covered by grants from the Arts Council and predecessors of AGMA.
[16] The Society consistently operated a deficit in each subsequent year with the deficit being covered to a greater or lesser extent by grants.
[17] The Society's accounts for year ended 31 March 2014 are not part of the period we are concerned with, but they are indicative of how the Society has always operated. The total income from all sources, other than endowment funds and restricted funds was approximately £7.4m. Approximately half that sum was voluntary funding, as described above. Some £2.7m was income from orchestral concerts and related work of the orchestra. Charitable and associated expenditure was approximately £7.0m, the bulk of which was orchestra costs.
[18] It is clear from the evidence that the box office and associated income would be wholly insufficient to cover the operating costs of the orchestra. Membership subscriptions are a relatively minor source of income for the Society. In the year ended 1974 they were £3,809 and in 2014 they were £53,000. In some years the membership income was not separately identified but included in “other income”.
[19] There are currently 956 members of the Society. We shall refer to the members for the time being as “Members”. The current annual subscription is £50 for an adult, £37 for a concessionary subscription and £56 for an overseas Member. Overseas Members pay extra because of additional postage costs. In the early years of the period covered by this appeal there was a distinction between Full Members and Country Members, the latter paying a reduced annual subscription.
[20] According to the articles of association of the Society, each Member has liability as guarantor not exceeding £5 to contribute to any deficit on a winding up of the Society. In addition each Member must pay an annual subscription. The articles provide that Members are entitled to attend and vote at general meetings where the annual accounts are received, external auditors appointed and directors appointed. Members have no interest in any income or property of the Society. On a winding up of the Society no property shall be distributed to Members. Such property must be distributed to a charitable or other institution having similar objects to the Society.
[21] In practice very few members actually attend the annual general meeting. Proportionately more attended in the late 1990s when the Society was experiencing financial difficulties. The table below shows the total number of Members and those attending the meetings at that time. In 1997 there was a contested election for membership of the board of directors and in 1998 there was a vote on changes to the Society's articles of association:
Year |
Total Membership |
Members Attending AGM |
1995 |
3,681 |
43 |
1996 |
3,998 |
54 |
1997 |
3,320 |
74 |
1998 |
2,908 |
72 |
[22] Since 1998 the number of Members has reduced considerably to just 956 Members in 2015.
[23] One of the issues which we must consider is what Members obtain for their membership subscriptions. In 2004 the Society recorded interviews with 40 Members as part of an oral...
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