HC Deb 26 May 2004 vol 421 cc1711-2W
Jim Knight

To ask the Chancellor of the Exchequer if he will extend the VAT Refund Scheme to include private museums that hold national designated collections, for the purpose of recovering VAT on expenditure incurred in National Lottery-funded projects. [174972]

John Healey

Like any other business, private museums can recover VAT incurred on buying goods and services providing those purchases relate to their taxable business activities. This would be the case where a museum is providing museum entry where admission charges are taxable at the standard rate of VAT.

Under the normal VAT rules provided for in the European Sixth VAT Directive, VAT incurred on goods and services relating to non-business activities, such as providing free entry to museums, cannot be recovered. This is also the case where VAT is incurred on exempt business activities, such as providing museum entry where no VAT is applied to admission charges under the VAT exemption for cultural bodies. The source of such an organisation's funding cannot be used to determine its VAT position.

However, since September 2001, the Government have provided a refund scheme that allows the main national museums and galleries which do not charge for admission to recover VAT they incur on related purchases. This scheme removes the obstacle VAT was creating to the delivery of our 1997 manifesto commitment that there should be free access to the main national museums and galleries.

That commitment has been an outstanding success. In this year's Budget, the Chancellor announced that, building on that success and on the recommendation of the Goodison Review, we are considering in the context of the forthcoming Spending Review extending the free access commitment for the main national museums and galleries, and the VAT refund scheme that has helped to deliver it, to university museums.

For bodies in receipt of National Lottery funding, irrecoverable VAT can be included as eligible project expenditure for lottery support. By funding this cost, the Heritage Lottery Fund's grant assessment process ensures that lottery-funded projects are not disadvantaged if they incur VAT on their expenditure. Any VAT recovered under a refund scheme should, therefore, be excluded from any grant awarded by the Heritage Lottery Fund.