A Gloucestershire charity has won a landmark case against the taxman that will bring a wave of relief to similar hard-pressed arts organisations across the UK.
Longborough Festival Opera won its appeal to stop HM Revenue and Customs removing its VAT exemption.
Richard Lloyd, partner at Birmingham law firm Needham & James, has represented LFO founder Martin G raham for more than 20 years. He says the test case judgement will benefit thousands of similar organisations that rely on their charitable status to secure exemption from VAT.
HMRC claimed that LFO had breached the rules for non-profit making organisations to qualify for exemption on two counts - management on a voluntary basis with directors having no direct or indirect interest, and distribution of profits to members.
But the case was thrown out in the High Court by Mr Justice Lightman who upheld the charity's position on both counts.
LFO was started in the early 90s by local property developer, Mr Graham, in a barn converted to host an annual Glyndebourne-style experience for local opera lovers.
His investment has since included adding a Palladian-style frontage, new staging, boxes and an orchestra pit, as well as the installation of seating from Covent Garden's Royal Opera House.
LFO, which was given charitable status in 2001, is run with his wife Lizzie, together with two independent trustees.
The trustees were concerned about the potential risk of putting on the first performance of Wagner's Ring Cycle to be performed in a private theatre and, in order to reassure them, Mr Graham offered a letter of comfort confirming that he would underwrite any losses.
VAT exemption is usual for arts organisations under EU law, but HMRC claimed that LFO had contravened its guidance and, that in giving the assurance that losses would be underwritten, Mr Graham had secured an 'indirect interest' in the organisation which could influence his decisions in its running.
The argument could have had very serious implications for charities.
But Mr Lloyd said: "Fortunately Justice Lightman took a pragmatic approach, concluding that the general fiduciary duties on directors and those operating charities meant that LFO's constitution satisfied the condition for exemption from VAT.
"If the case had been lost, any charity with similar objects and powers would have become ineligible for exemption and could have had it removed retrospectively, facing bills for unpaid VAT and possible bankruptcy."
