Not looking out for the little guy

On 21 March the Government announced proposals to introduce standard rate VAT on approved alterations to listed buildings owned or run by charities. On first sight this might appear to affect many theatres. The Theatres Trust estimates that around 750 theatres are listed across the UK – a significant number given that there are approximately 2,150 theatres in the UK, over half of which operate as theatres.

Whilst many theatres will be run by charities, in the eyes of HMRC they will be running a business for VAT purposes and will already be liable to pay standard rate VAT charges on any capital works, including works requiring listed building consent. Therefore the question we need to ask is how many theatres are used by charities for non-business purposes? HMRC Reference: Notice 701/1 (May 2004) is a handy guide to assessing whether an organisation run on a not-for-profit basis is considered as carrying on a business activity for VAT purposes.

It is likely that only theatres run by voluntary or amateur organisations entirely for non-business purposes – where the activity is relatively minimal and could not be considered as being other than “for pleasure or daily enjoyment” – will be affected by this change. The total number of such theatre buildings is probably around 200 and the number that are listed likely less than 20.

In such cases, the upkeep of the building is likely to be paid for primarily from the resources of its members, by users of the facility or through philanthropic donations. In addition, these theatres may not be registered for VAT, the HMRC states: “If you have no business activities or your only business activities are exempt from VAT, you can't register for VAT.”

So although only a tiny number of theatres may be affected, these changes will hit the voluntary sector the hardest. If this goes ahead, rather than providing tax benefits to help community groups who offer their services for free, amateur theatre groups who own listed theatres will have to factor in the additional 20% cost to any capital improvements they were planning to make.