In this recent case, the First-tier Tribunal (Tax Chamber) (FTT) ruled that Woking Museum and Art and Crafts Centre (the Charity) was making a taxable supply to Woking Borough Council (the Council) under section 4 VATA 1996.
The Council had resolved to exhibit a collection of artefacts it owned, and the Charity was identified as a suitable third party to establish and run a museum in which to do so. The Council entered into a services agreement with the Charity which, as well as setting out the Charity’s obligation to provide the museum, also recorded the Charity’s additional obligation to provide the Council’s Visitor Information Service. In consideration of this, the Council made various payments to the Charity and, in addition, some one-off grants in respect of activities not covered by the service agreement. HMRC issued a decision to the Charity that the arrangements under the supply agreement did not constitute a business supply by the Charity and so fell outside of the scope of VAT. The Charity appealed to the FTT.
The FTT found in the Charity’s favour for, in summary, the following reasons:
- the supply agreement was, as a matter of law, to be construed as a contract between the parties and not a grant from the Council to the Charity. The FTT found support for this view from the fact that the agreement contained, at its heart, the mutuality of obligation which is characteristic of a contract, and the Charity would be liable to the Council for breach of the supply agreement if it failed to perform the services thereunder
- the delivery of services by the Charity to the Council provided a direct benefit to the Council
- the arrangements under the supply agreement were not uncommercial in nature and were not a sham. The simultaneous pursuit of a charitable objective by a service provider does not of itself render the relationship non-economic for the purposes of the VAT Directive 2006/112/EC
- the payments made by the Council to the Charity under the supply agreement were never intended to represent a part payment for the services provided by the Charity. The fact that the bargain reached later proved to be disadvantageous to the Charity is entirely distinguishable from a contract which provides only for part payment at the outset
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