Cultural exemption

VAT - VAT: the basics - Cultural exemption - Other VAT issues - VAT Q&A

Who can claim?

Admission to museums, galleries and art exhibitions is exempt from VAT if the institution is operated by a public body (e.g. a government department, non-departmental public body or local authority) or another eligible body. This means they do not have to levy VAT on admission charges. 

An “eligible body”:

  • Is a non-profit making organisation
  • Applies profits from admissions to the continuance or improvement of its facilities
  • Is managed and administered on an essentially voluntary basis

The exemption does not apply where it would distort competition to the disadvantage of a commercial supplier of similar services, or in the case of a joint venture between a public body and any other organisation that is not a public body.

For more information on the cultural exemption, see the guidance provided by HMRC.
 
Case study

Assuming the museum is a charity, the main test in determining whether the cultural exemption applies is whether the organisation is managed and administered on an essentially voluntary basis.

This criteria has been the source of much dispute and has been tested through the courts on a number of occasions. VAT Tribunals and Appeals for the Zoological Society of London, the Zoological Society of Wales, Bournemouth Symphony Orchestra and Longborough Festival Opera have all contributed to a clear indication that to be eligible for the cultural exemption:

(a) People on the board, or people who are actively involved in taking key decisions for the organisation, should not be paid; and

(b) People on the board should not be able to profit from the success of the organisation, for example by receiving a bonus, incentive or excessive salary.

Example 1: Cultural exemption does not apply

Museum A is an incorporated charity. The museum’s constitution prevents any profits from being distributed. Any surpluses made are reinvested into the museum. The museum’s chief executive is a paid employee, but is also a voting member of the board.

Whilst the chief executive’s salary does not constitute a financial interest in the museum (because the salary is at the market rate, and not linked to the success of the museum), the cultural exemption does not apply because the museum is not deemed to be managed and administered on an essentially voluntary basis. This is because the chief executive was actively carrying out managerial functions as a board member, and was centrally involved in all important decisions.

Example 2: Cultural exemption does apply

Museum B is an incorporated charity. The museum’s constitution prevents any profits from being distributed. Any surpluses made are reinvested into the museum. One of the trustees provided her garage as storage space to the museum and received a commercial rent in return.

In this case the cultural exemption does apply because the rental income does not constitute a financial interest in the museum. The rental income is on commercial terms, and the trustee provides a service in return, therefore it does not constitute an extraction of profits.

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