Zoo learns VAT lesson at High Court

Roger Pearson reports on Chester Zoo's bid for VAT exemption on admission fees as it claims to offer an educational service.

The right of Customs and Excise to charge VAT on admission to places such as zoos, art galleries and museums was scrutinised by the High Court last month.

A challenge from Chester Zoo that it should be exempt from the tariff because it provides an educational service has failed.

A second challenge by London Zoo, which maintains that the zoo qualifies for cultural services exemption, is heading for the European Court.

In the case of R v HM Customs and Excise ex parte North of England Zoological Society 1999, which was heard by Mr Justice Carnwath, the zoo claimed it educates the public on animals and the environment.

But in 1998, a VAT tribunal ruled that the zoo was supplying recreation to visitors, not education.

The zoo gets around a million visitors a year, and, with admission charges at £9 a head for adults and £6.50 for children, pays well over £1m in VAT.

Because a large chunk of zoos' purchases, such as animal feed, does not attract VAT, the benefit they get from reclaiming the tax is not as great as it is for museums and art galleries, which incur VAT on all their running costs.

Counsel Andrew Hitchmough, instructed by Deborah Sharp of Arnheim Tite & Lewis, told Mr Justice Carnwath that in seeking to overturn the tribunal ruling, the zoo was "essentially teaching people about the animal kingdom, its diversity and the important goal of conservation".

"It is doing that along with giving the public first-hand experience of the animals within its collection," he argued, and claimed it should come under the VAT Act 1994 exemption provisions relating to supply of education.

Mr Justice Carnwath, however, ruled that when it came to VAT legislation, the term "education" was to be interpreted in a narrow sense, and referred to courses, classes or lessons of instruction, rather than the sense argued by the zoo, namely "the broadening of the mind".

Sharp says: "If we had won it would have had quite a significant effect for a lot of zoos, as well as museums and art galleries. Even though we lost, the situation is still far from clear cut. The London Zoo case may well result in the same treatment for a number of zoos, museums and art galleries if the European Court rules that it qualifies for the cultural services exemption."

She warns that there are other institutions which may suddenly be treated as exempt which might not want it. Places such as art galleries funded by grants, for instance, pay a lot in VAT and want to reclaim it.

Sharp says: "Even in the case of zoos, it could at times be beneficial to be VAT-rated. If, for example, a zoo was at the centre of a major refurbishment or rebuilding programme, then it may want to recover the VAT laid out on the work being done. On the whole though, zoos in particular would normally benefit from being exempt.

"We argued that as far as Chester Zoo was concerned it was supplying education because of the focus of the work done at the zoo. It is the intention of the zoo that everyone coming to the zoo should be educated in some way."

Had Chester won its case it is almost certain that Customs and Excise would have appealed.

However, an appeal by the zoo against the decision seems unlikely. Instead, it appears to be waiting for the outcome of London Zoo's challenge when it goes to the European Court.

London Zoo claims that as the actual control of the zoo is in the hands of people who have no financial interest and who run it on a voluntary basis it should be entitled to the cultural exemption.

But Customs and Excise has argued successfully that, while the people at the top are voluntary, those paid for the daily management of the zoo have a financial interest and this means it is not entitled to exemption.