Royal Opera House VAT alert

Rob Geary
Royal Opera House

A recent Court of Appeal case concerning the Royal Opera House Foundation has decided that that there was no direct and immediate link between the costs of staging productions and their taxable supplies of catering etc. The production costs were found to be ‘directly and immediately linked’ to ticket sales which are exempt from VAT due to the cultural exemption rules and the VAT costs incurred on them as a consequence was irrecoverable.

Royal Opera House


The Royal Opera House Foundation (“ROH”) is partially exempt for VAT purposes. Their income streams, which are relevant to this case,  are ticket sales which are exempt from VAT and catering sales which are taxable.

ROH’s appeal centred around their view that VAT incurred on the costs of staging productions should not be wholly attributed to VAT exempt ticket sales.  They concluded that these VAT costs should be considered residual because they were being incurred with a ‘direct and immediate’ link to both ticket sales and catering supplies. ROH’s successful argument at the First Tier tribunal was put forth as a ‘fully integrated visitor experience’ and that the quality of its catering supplies could be distinguished from those available at a West End theatre ‘where there might be a cramped bar or just ice creams available, the facilities of the Opera House were a key element for anyone attending a performance’.

Unfortunately for ROH, the Upper Tier tribunal and the Court of Appeal disagreed with this conclusion.

It was accepted that the ROH demonstrated a ‘but for’ link between the production costs and catering supplies on the grounds that catering would not be supplied if there were no performance taking place.  The Court agreed with HMRC that there should be a test of ‘commercial necessity’ which did not grapple with the ‘need for the link to be direct and immediate’.

In conclusion, the Court of Appeal stated ‘The Production Costs are not used in order to make supplies of champagne at the bars of the ROH’.  Furthermore, ‘in no sense could it be said that the Production Costs are part of the costs of supplying the champagne and thus a direct and immediate link is precluded’. The Court accepted that there was a link between the exempt supplies in this case and the promotion of catering supplies and compliments their overall aim to provide customers of the ROH a ‘fully integrated visitor experience’.  However, that is not in itself sufficient to reach a conclusion that the production costs are a cost component of the catering supplies.


Whilst the decision was disappointing for the ROH, it should be noted that the facts were quite specific.  Other similar organisations may not be incurring their own production costs for example.  Or in contrast, there may be a single supply of catering and tickets for example which could go someway to proving there is a direct and immediate link.

Here you can find a full report of the decision from the Court of Appeal case concerning the Royal Opera House Foundation.

Should there be any similar organisations for who this decision may impact upon, it would be sensible to review your current partial exemption position and to consider whether your VAT position would stand up to scrutiny. 

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