Museums, Charges and VAT
There have been a number of articles recently in the press on whether museums should start charging again. For example see
or
The reasoning is that with government funding being so heavily cut unless they raise money directly from the public they will be forced to close galleries, sell works and generally give a worse visitor experience.
None of theses articles have mentioned VAT. This is understandable as they have been written by arts journalists who are perhaps less interested in VAT than other journalists, who in my experience try and avoid the subject. But its a bit misleading as VAT questions have impacted upon the question of museum charges in the past and likely will again.
In the 1980s the Conservative Government encouraged museum admission charges and a number of government funded ‘national’ museums introduced them. One of the reasons given for this was to obtain a VAT refund. The problem was that free museums were seen by HMCE as being engaged in a non business activity of allowing the public to view exhibitions for no charge and you cannot recover VAT on non business activities. In introducing charges museums made their permanent exhibitions business, making supplies of admission on which they charged VAT. This allowed them to recover the VAT they incurred. Since their Vatable costs exceeded the income they obtained from admissions the introduction of charges allowed them claim back more VAT than than they charged. The VAT system was helping fund museums.
The Labour Government elected in 1997 had rather different views and favoured free museums. But this was not possible until the VAT question was resolved which happened in the 2001 budget when a section 33 refund was introduced for national museums that incurred VAT on non business activities. When this refund was introduced the nationals could abandon charges and still keep their VAT refund.
The problem for national museums if they decided to abandon free admission and revert to making charges is that the VAT treatment of their admission charges may have altered in the meantime. This is because of the 2002 case concerning London Zoo which found that the UK had adopted a far too restrictive policy towards the VAT cultural exemption. The question of whether this exemption applies comes down to whether the body in question is managed and administered on an essentially voluntary basis. Are the decisions of last resort and higher supervisory tasks carried out by volunteer trustees or paid staff. If it’s the trustees that make these main decisions then the exemption will apply. This means a museum so managed would now make VAT exempt admission charges. But if you make exempt supplies then the VAT system restricts your VAT recovery.
For national museums that are so managed the law has essentially done a u turn since the 1980’s. Then you charged an admission to enable VAT recovery whereas now you only get recovery if you don’t charge. There are potentially ways around this and it may be the case that some museums that want to charge could try and argue that they are not culturally exempt. Those which get a lot of income from special exhibitions may have already worked on this. But VAT recovery is certainly still a factor in the debate on the pros and cons of museums charging.