| Revenue — Value added tax — Exemptions — Charitable theatre trust buying in productions — Whether direct and immediate link between production company’s payment and trust’s supply of programmes — Council Directive 77/388/EEC, art 17 — Value Added Tax Act 1994, s 26 — Value Added Tax Regulations 1995 (SI 1995/2518), reg 101(2)(d)
Mayflower Theatre Trust Ltd v Revenue and Customs Comrs
CA: Auld, Chadwick and Carnwath LJJ: 22 February 2007
A direct and immediate link between the payment made by the taxpayer to a production company for the use of the taxpayer’s theatre and the provision by the taxpayer of programmes for sale to those attending the production was sufficient to bring the payment within the partial exemption provision of the Value Added Tax Regulations 1995 (SI 1995/2518), reg 101(2)(d).
The Court of Appeal so held dismissing an appeal by the Revenue and Customs Commissioners from a decision of Hart J on 31 March 2006 [2006] EWHC 706 (Ch) deducting £679,694 of input tax from the liability of the Mayflower Theatre Trust Ltd for the VAT period between March 1999 and December 2002.
CARNWATH LJ said the Mayflower Theatre in Southampton was the fourth largest in the country and had been leased by the city council to the Trust, which did not put on its own productions but bought in performances from production companies under separate production contracts. The Trust contended that it was entitled to repayment of a proportion of the input tax it could have deducted in respect of the consideration paid to production companies. It contended that under the partial exemption rules the input tax was not attributable exclusively to the exempt supplies of theatre tickets, but also in part to taxable supplies of various types. These included the supply of programmes to theatregoers. The programmes were taxable, though zero-rated. It was common ground that if the trust succeeded in demonstrating a direct and immediate link between the input payment and any one of the taxable items supplied, it would be entitled to bring into account all its taxable supplies (regardless of attribution) in calculating the tax deduction. For periods before 2002 the Revenue and Customs would have no power to direct an alternative method of apportionment. The total supplies over the period were over £6m, of which the programmes were only £87,000. It was common ground that success on one of the smaller items was enough to bring in all the taxable supplies. It was true that the production companies were not directly responsible for the programmes, other than the provision of information. But the productions for which they were responsible, and which provided the subject matter of the contracts, also provided the subject matter of the programmes. To that extent they were as much part of the raw material used in preparing the programmes as the paper and ink from which they were physically made. That conclusion was enough to support the judge’s decision, albeit on different grounds.
CHADWICK LJ gave a concurring judgment and AULD LJ agreed.
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