Date of issue: 23rd April 2007

COURT OF APPEAL RULES IN FAVOUR OF THEATRE GROUPS

The Court of Appeal has brought down the curtain on a long-running dispute over the VAT costs of hiring in external productions companies to put on a performance.

Independent chartered accountants Clement Keys says charitable theatre groups have had their patience rewarded after the Court of Appeal sided with the trustees of the Southampton-based Mayflower Theatre Trust and decided that these VAT costs can be attributable both to the making of taxable supplies, such as the sale of programmes, and exempt supplies like ticket sales.

Originally, HM Revenue & Customs had argued that VAT could be attributable only to the exempt sale of tickets.

This decision will mean that a wide range of arts organisations will not only be able to improve their VAT recovery going forward, but will also be able to seek refunds of the VAT they have overpaid. The amounts could run into millions of pounds.

"Charitable theatre groups that took advantage of the earlier High Court decision and have been treating this type of expense as a residual input tax can continue to treat this expenditure in the same way," says director of Indirect Tax Services Steven Simmonds.

"However, those that decided to wait for the Court of Appeal's ruling now have the green light to press ahead with a claim for under claimed input tax."

Where VAT that is to be reclaimed exceeds £2,000, theatre groups will need to submit a voluntary disclosure to HM Revenue & Customs, otherwise they can simply reclaim the amount on their next VAT Return.

While it is not yet clear whether HM Revenue & Customs will seek permission to appeal the decision to the House of Lords, Clement Keys recommend that arts organisations which believe they may be affected by the Court of Appeal ruling should review the position with their tax advisors.