Serpentine Trust Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 September 2014 |
| Neutral Citation | [2014] UKFTT 876 (TC) |
| Date | 08 September 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 876 (TC)
Judge Barbara Mosedale
Mr R Vallet, Counsel, instructed by NGM, appeared for the Appellant
Ms R Paveley, HMRC officer, appeared for the Respondents
Value added tax - Mixed bag of benefits to supporters making "donations" to charity - Whether benefits supplied "for" the "donations" - Yes - Whether single or multiple supplies - Single - Whether element of single supply could be zero rated - No - Nature of single supply - Standard rated - Appeal dismissed.
HMRC issued a decision that income received from certain supporters' schemes operated by the appellant was standard rated and then raised an assessment for £171,067 on the basis of this decision and subsequently reduced the appellant's VAT repayment claim by £165,970.33 on the same basis. The decisions and assessment were upheld on review and the appellant appealed against that review decision. The FTT dismissed their appeal.
The Serpentine Trust Limited is a company limited by guarantee and a registered charity. It runs contemporary art galleries in Kensington Gardens, London: the Serpentine Gallery and the Sackler Gallery.
Admission to its galleries is normally free. It also operates supporter schemes. To become a supporter under any of the five supporter schemes, the supporter must pay a stated amount and then becomes entitled to specified benefits ("the Benefits").
HMRC considered that the sums paid by the supporters were consideration for the supply to them of the Benefits, and that supply was standard rated.
The Trust did not accept this. It considered that the Benefits provided to supporters were de-minimis with the effect that the Benefits were not provided "for" the payments by the supporters, and that there was therefore no supply.
In the alternative, the Trust considered that part only of the payment by the supporters was "for" the Benefits and that the payments should be apportioned under the Value Added Tax Act 1994 (VATA 1994) Value Added Tax Act 1994 section 19 subsec-or-para 4s. 19(4) between the "donation" and "consideration" elements.
Finally, and in the alternative, the Trust's case was that even if the Benefits were provided in return for the full payment by the supporters, the consideration was paid for a package of supplies some of which were zero rated and some exempt and only the remainder subject to VAT; and if they were wrong on this and there was only a single supply, nevertheless following Talacre Beach Caravan Sales Ltd v C & E CommrsECAS (Case C-251/05) [2007] BVC 366 it was a supply at multiple rates and was partly zero rated.
There were five different supporter schemes:
(2) The Benefactors' scheme;
(3) The Future Contemporaries' scheme;
(4) The Patrons' scheme;
(5) The Learning Council scheme;
(6) The Council of the Serpentine gallery scheme.
Each scheme offered a different level of support from the donor and they were entitled to different levels of "Benefits"
As an example, the "Benefactors' scheme" worked as follows:
To become a Benefactor, the supporter had to agree to "donate" £500 per year for five years (ie £2,500 in total). The Benefactor received:
•Free invitations to an out-of-hours VIP private view of each exhibition (five per year) in the gallery including a talk by the curator;
•Free invitations to five early morning breakfasts per year with the Trust's directors and a curator led tour of the gallery;
•A free monthly, on-line "Art Tour" which would include information on art exhibitions generally (not just those undertaken by the Trust) as well as views of the Directors on art related matters;
•Advance notice to purchase Serpentine Gallery limited edition prints;
•Priority bookings on events taking place at the Gallery e.g. artists' talks, film screenings;
•Acknowledgement as a benefactor on a board in the lobby and in the Trust's printed matter and website.
The issue, simply stated, is whether the "donations" by supporters constitute the consideration for a supply by the gallery.
VATA 1994, s. 5 provides:
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(2)
(a) "supply" in this Act includes all forms of supply, but not anything done otherwise than for a consideration
So, the VAT law is simple: a genuine donation is properly outside the scope of UK VAT as not being the consideration for a supply; where there is a mix of donation and consideration, then problems arise.
Leading cases remind taxpayers that it is important to be clear about just what a donor gets in return for a "donation".
The Trust saw the benefits provided to its supporters merely as a low cost acknowledgement of their support and told the FTT that the supporters (with the exception of Council members) did not consider themselves as making a purchase from the Trust but rather a donation to it.
The Serpentine Trust cited several leading cases on the relationship between donation and benefits, in particular:
The Church of England Children's SocietyVAT[2004] BVC 2317. In that case one of the issues was whether a newsletter was given in exchange "for" the promise to pay donations. That case in turn relied on Kuwait Petroleum (GB) Ltd v C & E CommrsECAS (Case C-48/97) [1999] BVC 250 to say that, while there had to be a legal relationship and reciprocity between the parties, these were not sufficient to found a supply: it was not enough to show legal relationship and reciprocity, the parties had to agree objectively that value given was in consideration for benefit.
On the basis that the documents described the payment as a "gift", a donor could decline the newsletters, and the accounts treated payments as donations, the Tribunal decided that the donations were not "for" newsletter. They considered the donations were merely gifts with a counter stipulation and not consideration for a supply.
In Kuwait Petroleum there was a contract and reciprocal performance under which Kuwait (or an independent petrol supplier) was liable to supply both petrol and "Q8" vouchers in return for payment, and later to redeem the Q8 vouchers for "free (redemption)" goods.
The ECJ indicated that (a) because the redemption goods were described as free in the contract and (b) because the price of the fuel was not discounted when a person did not take the Q8 vouchers, the court was likely to conclude that the price was only paid for the fuel and not for the vouchers as well.
In essence, Serpentine's case was that doing something in return for payment does not necessarily mean that the consideration was paid "for" that something in return.
It is also settled HMRC policy that a mere acknowledgement, such as a lapel sticker does not make a supply. Serpentine's view was that, although more than a mere acknowledgment was provided in this case, the Benefits provided were de-minimis and did not alter the nature of the payment as a donation.
The appellant's first case, applying Kuwait and Church of England Children's Society, was that despite the contract and reciprocity, the Trust and its supporters had not agreed that the "donation" would constitute the value given in return for the Benefits. The evidence for this on the facts was (a) (on their case) the value of the Benefits was insignificant compared to the payment and (b) the brochure held out the payment as a gift.
HMRC did not agree and they relied on the Scottish Court of Session decision in C & E Commrs v Tron Theatre LtdVAT[1994] BVC 14.
The FTT agreed with the earlier cases that the question of whether a supply is "for" consideration in so far as it is a question of fact requires objective rather than subjective consideration.
Applying Kuwait and Church of England's Children Society, the FTT considered whether objectively the Benefits were "for" the "donation" and would not accept that the benefits it provided to its supporters in exchange for the specified payments were objectively (or subjectively) de-minimis by themselves or measured against the price paid by the relevant supporter, and further and for the same reasons the FTT was not satisfied objectively (or subjectively) that the price was not paid "for" the benefits.
The FTT held that the benefits had very real value to the supporters, and the value was likely to exceed the cost of providing the benefits. Unlike Church of England Children's Society, this was not a gift with a stipulation which permitted donors to check what their donation was used for.
This was a payment in return for very real benefits to the "donors". It was consideration for a supply.
Serpentine submitted that VATA 1994, Value Added Tax Act 1994 section 19 subsec-or-para 4s. 19(4) ought to be applied to apportion the payment received from supporters between that part that was attributable to the Benefits and that part that was in excess, and was a donation.
S. 19(4) provides: "Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it."
The Court of Session in Tron Theatre rejected Tron's case, that Value Added Tax Act 1994 section 19 subsec-or-para 4s. 19(4) permitted an apportionment on a payment to a charity, where the Benefits were said to be of much less value than the payment.
The Court of Session in Tron Theatre, held that the intention of Value Added Tax Act 1994 section 19 subsec-or-para 4s. 19(4) was not to reverse, or go behind, the rule on the valuation of consideration set out in the Sixth VAT Directive and as explained in cases such as Naturally Yours Cosmetics Ltd v C & E CommrsECAS (Case No 230/87) (1988) 3 BVC 428. Applying those principles the entire amount paid for the benefits was the consideration as that was the price that the parties had subjectively attributed to the supply. Once it was established that the payment was "for" the benefits, even if the supply was grossly...
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