Most people would say that philanthropy is easily defined and involves selfless giving for the benefit of mankind. However, the issue of what is, and is not, philanthropic posed a conundrum for a tax tribunal in the case of a 150-year-old orchestra.
The world-renowned orchestra was run by a non-profit-making charity which, for almost 20 years, had been engaged in a debate with HM Revenue and Customs (HMRC) as to whether VAT should be charged on its members’ subscriptions. The latter received in return various benefits, including priority booking rights.
The charity sought to benefit from the philanthropic exemption from VAT which was introduced in the UK in 1999 and is now enshrined in the VAT Act 1994. It was submitted that everything the charity did was directly connected to the philanthropic objective of promoting the study, practice and knowledge of the art of music.
However, HMRC’s lawyers pointed out that the charity charges for tickets to its concerts and argued that the promotion of classical music, whilst bringing pleasure to many, does not promote the wellbeing of mankind in general. They drew a contrast between the charity’s concerts and the Live Aid event, in 1985, the purpose of which was to raise money for famine relief in Ethiopia. They also questioned whether providing a free heavy metal concert would be philanthropic.
Ruling on the case, the First-tier Tribunal (FTT) found that the benefits received by the charity’s members meant that their subscriptions were, in principle, subject to VAT. However, in finding that the philanthropic exemption applied, it noted that it is for the benefit of society as a whole that classical music endures for present and future generations. The charity’s heavily subsidised concerts were in some cases free and its objects were clearly benevolent. The FTT’s ruling entitled the charity to a tax rebate running into tens of thousands of pounds.