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Woking Museum and Arts and Crafts Centre (TC3315)
The taxpayer was a charity that registered for VAT on 1 March 2003. It received £224,000 annually from Woking Borough Council for the provision of “museum and temporary exhibition facilities and arts crafts and cultural activities”, as well as visitor information services.
The charity charged output VAT on its invoices to the council. HMRC argued the arrangement was not a business supply by the taxpayer and was outside the scope of VAT.
The First-tier Tribunal said the agreement between the council and the charity should be taken as a contract on the basis it contained “at its heart” a “mutuality of obligation, which is characteristic of a contract”.
The taxpayer would be liable to the council for breach of contract if it did not carry out the services listed in the agreement between the two parties.
The tribunal judge ruled there was a direct link between the supply of services by the charity and the consideration paid by the council.
The services provided by the taxpayer were a “direct benefit” to the council. The charity was correct to charge VAT on the invoices because it was making a taxable supply.
The taxpayer’s appeal was allowed.
Decision was consistent with the landmark case of Bath Festivals Trust Ltd (20840), said independent VAT consultant Neil Warren said. A charity was deemed to be providing taxable services to the local council in promoting and organising a music festival, even though primarily the audience members enjoyed the services.
“The instant case also shows the importance of ensuring contracts and service agreements are clearly worded to ensure they reflect the true nature of an arrangement in practice,” Warren added.
