The Woking Museum and Arts and Crafts Centre is a charity set up to “advance the education of the public in local national and international history and arts and crafts”. In 2003 it entered into an agreement with the Woking Borough Council [In the UK] to “provide arts museum and cultural services and a public information service within the Borough of Woking”. The Council agreed to make annual payments to the Centre in return.
The UK Customs and Excise decided the payments made by the Council should not be subject to VAT. They argued the Centre was not a business and the payments were grants rather than “consideration” for supplies of services.
On 10 February 2014 the First Tier Tribunal hearing the case between the Council and the Centre decided the payments are subject to VAT for a number of reasons. Key to the Tribunal’s decision were the following conclusions:
1. The agreement entered into by the parties was a contract for the provision of services by the Centre to the Council and not a grant because there are mutual obligations characteristic of a contract.
2. The services delivered by the Centre provided a direct benefit to the Council in that artefacts of the Council were preserved in the museum by the Centre under an obligation to make space available for them.
3. The arrangements were commercial in nature and the fact the Centre is a charity does not render the relationship un-economic. The purpose and results of an activity are immaterial in determining whether that activity is “economic”.
This sort of analysis is as relevant in NZ as it was to this decision.
There are many organisations providing public benefit services under contracts with local authorities and government bodies. It is not always clear whether those arrangements are subject to GST and in fact we’ve had case law of our own on these sorts of issues.
The crux is how the payment should be treated. Is it a grant or a payment for services? In the end the arrangements and circumstances of each case will determine the outcome but the analysis above should provide some insights into what factors are important.
Barrister, Director and Consultant specialising in tax, family enterprise governance and succession, helping start ups and entrepreneurial enterprises grow safely and international expert on value added tax policy and implementation.