Grant or Contract? Why does it matter?

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Background

In September 2003 Woking Borough Council (Council) and Woking Museum and Arts and Crafts Centre (Centre), a registered charity, entered into an agreement whereby the Centre agreed to provide “arts museum and cultural services” and a visitor information service to the Council in return for an annual sum of £224,000 together with one-off payments.  A dispute arose with HM Revenue & Customs as to whether this arrangement was a grant or a contract.