VAT Exemption Tax Appeal – Live Theatre Screenings
Problem: In the recent judgment by the First-tier Tribunal (tax chamber) in Derby Quad Limited v HMRC, the tribunal had to determine whether live screenings at Derby Quad’s arts centre qualified as ‘live performances’ for VAT exemption. This required the tax tribunal to analyse whether digital screenings met the criteria set out in the VAT Act 1994 for cultural performances to be VAT exempt.
Outcome: The First-Tier Tribunal ruled that Derby Quad’s screenings did not qualify for VAT exemption. The decision was based on the tribunal’s interpretation that screenings did not meet the traditional definition of a ‘live performance’, primarily due to the lack of direct interaction between the audience and performers. The absence of audience and performer interaction, particularly the lack of live feedback to the cast, was considered a major distinction. This determination was influenced by the tribunal’s interpretation of the essential features of a theatrical performance, requiring the physical presence of both the audience and performers in the same place.
What is Value Added Tax (VAT)?
Value Added Tax (VAT) is a tax that businesses in the UK charge on most goods and services they provide to customers. VAT is added to the price of products or services, and paid to HMRC at the end of each quarter. However, some items and services are exempt from VAT or are taxed at a zero rate, reducing the cost for consumers.
What is VAT Exemption?
VAT exemption applies to certain goods and services where no VAT is charged, and the business cannot reclaim any VAT on its purchases. This is different from zero-rated goods, where VAT is charged at 0%. Exempt VAT items include certain types of education and training, insurance, and some types of health services.
The VAT Act 1994, specifically Schedule 9, outlines the scope of VAT exemption. For cultural services, Group 13 of this schedule is critical. It details that certain cultural events and services, such as admissions to museums, art exhibitions, and theatrical performances, can be exempt from VAT. The aim is to support the arts and culture sector by making these activities more accessible and affordable to the public.
To qualify for VAT exemption under the VAT Act, services or products must strictly meet the criteria set out in the legislation; the requirements for each industry differ and it is important to understand the requirements. The interpretation of these criteria can sometimes lead to disputes, as seen in cases like Derby Quad Limited v HMRC, where the definition of ‘theatrical performances’ was central to the VAT exemption claim.
Common Examples of VAT Exempt Goods and Services
There are several common examples of goods and services that are typically VAT-exempt in the UK including:
- Healthcare Services: Medical services provided by registered health professionals, such as doctors, dentists, and opticians, are exempt from VAT. This includes medical care, dental treatment, and eye tests.
- Education and Training: Certain types of education and training, including tuition provided by schools, colleges, and universities that are eligible bodies, are VAT-exempt. This covers most formal education services.
- Insurance: Financial services such as insurance, including life insurance, car insurance, and home insurance, are generally exempt from VAT.
- Postal Services: The Royal Mail’s standard postal services, which are subject to regulation, are exempt from VAT. This does not include parcel delivery or courier services offered by other providers.
- Finance and Credit: Certain financial services, including the provision of credit and some banking services, are VAT-exempt.
- Property and Land: Renting and leasing of residential property and the sale of freehold property are usually exempt from VAT. However, there are complexities, especially in commercial property transactions.
- Membership Subscriptions: Subscriptions to certain types of organizations, such as trade unions or professional bodies, can be VAT-exempt.
- Cultural Services: Admission charges to cultural events and services, like museums, art exhibitions, and live theatrical performances, can qualify for VAT exemption under specific conditions.
- Charitable Fundraising Events: Certain fundraising events organised by charities are exempt from VAT.
- Betting, Gaming, and Lotteries: Some types of betting, gaming, and lottery activities are exempt from VAT.
The Charity’s Claim for VAT Exemption
Derby Quad Limited v HMRC [2023] TC08972
Derby Quad (DQ), a charity that provides a venue for various cultural services including art exhibitions and cinema screenings, entered into contracts with theatre companies to obtain licenses for screening plays performed on stage. These screenings, occurring concurrently with live events, aimed to provide audiences with the collective experience of watching theatrical performances as a group.
In 2016, DQ overpaid VAT for previous years and now claimed an exemption under Item 2 Group 13 of Schedule 9 of the VAT Act 1994. However, HMRC refused the exemption. Derby Quad Limited challenged HMRC’s assessment that theatrical performances broadcast by live screenings did not qualify for VAT exemption. The core of the dispute was whether these live event performances constituted ‘theatrical performances’ eligible for VAT exemption under the VAT Act 1994.
The key to the claim was the interpretation of Item 2 Group 13 Schedule 9 of the VAT Act 1994, which outlines VAT exemptions for certain cultural services provided by eligible bodies. This includes the right of admission to museums, art exhibitions, and theatrical, musical, or choreographic performances of a cultural nature.
The Charity’s Argument
DQ argued that their live event screenings were distinct from regular cinema screenings, offering an enhanced audience experience and therefore should be considered ‘theatrical performances’ within the scope of VAT exemption. DQ highlighted enhanced customer experience, higher admission prices, and artistic merit in live events. DQ’s argument was based on the argument that digital innovation and new technology had expanded in theatre to include live digital broadcasts, therefore justifying VAT exemption. They also emphasised that these events communicated the atmosphere of live theatre through satellite transmission, capturing the essence of a live performance and differentiating them from standard cinematic performances.
HMRC’s Argument
HMRC argued that the screenings did not amount to ‘live performances’ in the traditional sense as it was being broadcast via a screen. They argued that the absence of direct interaction between performers and audience and the geographical separation between the performance and screening locations disqualified these events from the VAT exemption for live theatrical performances.
The FTT’S Decision
Despite DQ’s arguments, the First-Tier Tribunal ruled against the charity and determined that the live screenings were not VAT exempt. The tribunal determined that the screenings, while sharing some similarities with theatre performances, did not align with the natural meaning of a theatrical performance. An important factor in the decision was the absence of audience and performer interaction, particularly the lack of live feedback to the cast.
The tribunal concluded that these interactions, requiring both the audience and performers to be physically present in the same place, were essential components of a theatrical performance. As a result, Derby Quad’s claim for VAT exemption was rejected by the tribunal.
Comments from our Expert Tax Lawyers in London
The decision shows the importance of physical presence and audience-performer interaction in defining a theatrical performance for VAT exemption purposes. Businesses in the live theatre screening industry must carefully review their VAT positions. The decision could prompt businesses to re-evaluate customer experiences, pricing strategies, and the overall structure of events. Venues and organisations leveraging technology to extend the reach of theatre should seek professional advice to align with tax regulations.
If you have questions about VAT Relief, please contact our expert tax lawyers in London for a Free Consultation on 0207 459 4037 or complete our online booking form. For more information on our tax services, please see our dedicated tax pages in the main menu under expertise.
