How Theatres can maximise their VAT recovery on production costs
Sorry, this is a little bit technical and is aimed fairly and squarely at those that run theatres. The intention is to help you overcome the apparent blindness of HMRC to the link that exists between production costs and income generated by the theatre from the sales of programmes, etc.
This only affects theatres that qualify for exemption from VAT on admission charges. Such venues have both taxable and exempt income and are thus said to be partly exempt. This means that they have to restrict the VAT they recover on costs to that which relates to taxable activities.
HMRC have published a Revenue & Customs Brief, 62/09 VAT: Partial Exemption – VAT deduction by theatres on production costs, which sets out their ‘revised policy’ following the VAT Tribunal decision in the case of Garsington Opera.
In the Revenue & Customs Brief HMRC state that production costs will only become partly recoverable if there is a firm intention to make taxable as well as exempt supplies when the costs are incurred. Later in the Revenue & Customs Brief HMRC say the intention must be a genuine intention, not an aspiration or hope.
What do you have to do to create the direct and immediate link between the sale of programmes and the production costs? You have to show that you had an intention of selling programmes at the shows (even though this is the only time that programmes are usually sold, and a direct and immediate link seems to be there anyway) at the planning stage. To do this you need to add the programme production to the list of things to do when planning a production, and include in your decision making process a note that it is the theatre’s intention to raise money from sales of the programme at the time of allowing public admission to the production.
Other items that you might want to include in your planning are additional purchases of goods to be sold in the theatre, extra staff being employed to man selling points of memorabilia, etc. should all create a direct and immediate link to the production costs.
And remember to make sure that your fund-raising team seek sponsorship for particular productions, or production runs, as highlighted in the Revenue & Customs Brief to create a direct and immediate link between the production costs and the sponsorship.
HMRC, however, appear to take a different view but don’t appear to be able to put together a fully reasoned argument as to why it is so much easier to show a direct and immediate link to the exempt activity (admission charges) and yet so difficult to show one to taxable activities (e.g. programme sales).
I cannot guarantee that you won’t have trouble with HMRC when they review your partial exemption position if you follow the suggestions in this article. What I would expect though is that if you take your case to the VAT Tribunal, and beyond if necessary, the decision will be that there is a direct and immediate link.
Now for the trite comment: every case is different, so you MUST seek advice on how to deal with this for your organisation from a professional VAT adviser.
If you have any questions about this issue, or wish to make your own comments please use the facility below. I look forward to hearing from you.
Sorry, this is a little bit technical and is aimed fairly and squarely at those that run theatres. The intention is to help you overcome the apparent blindness of HMRC to the link that exists between production costs and income generated by the theatre from the sales of programmes, etc.
This only affects theatres that qualify for exemption from VAT on admission charges. Such venues have both taxable and exempt income and are thus said to be partly exempt. This means that they have to restrict the VAT they recover on costs to that which relates to taxable activities.
HMRC have published a Revenue & Customs Brief, 62/09 VAT: Partial Exemption – VAT deduction by theatres on production costs, which sets out their ‘revised policy’ following the VAT Tribunal decision in the case of Garsington Opera.
In the Revenue & Customs Brief HMRC state that production costs will only become partly recoverable if there is a firm intention to make taxable as well as exempt supplies when the costs are incurred. Later in the Revenue & Customs Brief HMRC say the intention must be a genuine intention, not an aspiration or hope.
What do you have to do to create the direct and immediate link between the sale of programmes and the production costs? You have to show that you had an intention of selling programmes at the shows (even though this is the only time that programmes are usually sold, and a direct and immediate link seems to be there anyway) at the planning stage. To do this you need to add the programme production to the list of things to do when planning a production, and include in your decision making process a note that it is the theatre’s intention to raise money from sales of the programme at the time of allowing public admission to the production.
Other items that you might want to include in your planning are additional purchases of goods to be sold in the theatre, extra staff being employed to man selling points of memorabilia, etc. should all create a direct and immediate link to the production costs.
And remember to make sure that your fund-raising team seek sponsorship for particular productions, or production runs, as highlighted in the Revenue & Customs Brief to create a direct and immediate link between the production costs and the sponsorship.
HMRC, however, appear to take a different view but don’t appear to be able to put together a fully reasoned argument as to why it is so much easier to show a direct and immediate link to the exempt activity (admission charges) and yet so difficult to show one to taxable activities (e.g. programme sales).
I cannot guarantee that you won’t have trouble with HMRC when they review your partial exemption position if you follow the suggestions in this article. What I would expect though is that if you take your case to the VAT Tribunal, and beyond if necessary, the decision will be that there is a direct and immediate link.
Now for the trite comment: every case is different, so you must seek advice on how to deal with this for your organisation from a professional VAT adviser.
If you have any questions about this issue, or wish to make your own comments please use the facility below. I look forward to hearing from you.
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