Implications of the Hallé case for the philanthropic exemption

A recent First Tier decision, Hallé Concert Society, TC05067, has an apparently major impact on the potential scope of the exemption for membership subscriptions to charities.

Hallé is an orchestra and a charity.  It has a membership scheme that gives members democratic involvement in the charity.  It argued that it ought to have exempted these membership subscriptions because it is a philanthropic body.  On this argument it was successful.  It also argued that the benefits to members did not constitute a supply to them within the scope of VAT.  On that argument it was unsuccessful.

The benefits offered are all referable to the charity’s purposes and objects.  They include such benefits as priority booking, events focused on the work of the orchestra, and provision of information.  The subscriptions are modest, in line with these modest benefits.  There are no events involving catering or discounts for products sold etc.. Whilst the lack of these was not mentioned in the decision, they are clearly relevant considerations since the exemption can only apply if the benefits are referable to the purposes of the body.

The key issue, therefore, was whether orchestral music is a philanthropic activity.  The tribunal held that it is.  In doing so, the tribunal commented that ‘philanthropy’ is a wide concept, rather than a narrow one.  It subsumes all that is charitable, but goes wider than charitable activity.  The fact that it is defined as helping the welfare of fellow human beings does not restrict is meaning to direct help for unfortunate people (though we knew that from Game Conservancy Trust), and in effect means that any activity provided on a subsidised basis which can have a good impact on humans is philanthropic.  In this case, providing music is philanthropic where it can be shown to be provided at a financial loss.  The Hallé has always made a loss (in common with all subsidised orchestras and other culture providers).  Hence the body is philanthropic.

On this basis, it is difficult to see how any subscription to a members’ scheme where the member has some form of democratic involvement (since I think this case only applies specifically in such a situation) and the benefits are referable to those aims, would fail to be exempt.  This would be beneficial in many cases, though not in all, since it creates a partial exemption cost.  Up to this point, a general view prevailed that ‘philanthropic’ had to denote a narrower category than ‘charitable’.  It had to link specifically to the welfare of humans, rather than to less tangible ‘good’ to the world such as the arts and education.  However, the tribunal believed that the history of philanthropy put it in a different light to this and gave a much wider meaning.

While I believe HMRC is certain to appeal it, and I think the decision could well be overturned, this could be a case that takes the definition of ‘philanthropic’ into the various appeal courts – it needs to be treated with caution.

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