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October 11, 2021

Show Deals – VAT

TAXWHAT IS VAT:

VAT can get really complicated – fortunately booking agents only need to understand the basics – but understand them they must!

VAT or Value Added Tax – is a sales tax that is added to the price of goods and services. Companies that turn over more than £85K a year must register with the HMRC for VAT. Once registered, the HMRC gives them a unique VAT number and the company must add VAT to the price of their goods or services at the going rate. It is illegal to collect VAT unless the company has a VAT number.

In the UK the standard rate of VAT is currently 20%. Some things are exempt from VAT like public transport, stamps, children’s clothes, etc and some things are charged at a different rate like fuel where the rate of VAT is currently 5%.

When a VAT registered company buys something that has VAT on it they can claim the VAT back from HMRC.

The company keeps a record of all the VAT they have collected on sales. (Invoices out)

The company keeps a record of all the VAT they have paid on purchases. (Bills in)

Every quarter, the company works out the difference between VAT in and VAT out. If a company is trading profitably they will have collected more VAT than they have paid – they then send the difference to HMRC.

If they are collecting less VAT on their invoices than they are paying in their bills then HMRC pays the difference back to the company.

VAT accounts for about 16% of all UK tax revenue – in 2019/20 this was £134 Billion – so quite a lot really!

VAT ON A BAND’S FEE

If the band is resident in the UK, the show is in the UK and they are registered for VAT, then they must charge VAT on top of their fee. When the agent draws an invoice on the band’s behalf, they need to ensure VAT is applied correctly and the invoice has the band’s VAT number on the invoice. The current rate is 20%. In most cases, the promoter will also be registered for VAT so they will be able to claim the VAT back.

However, a lot of smaller promoters are not registered for VAT and they will not be able to claim it back. This is why if the band is VAT registered, their fee must always be quoted as £XXXX + VAT.

If the show is abroad, then VAT is not added to the band’s fee because the work is carried out, outside the UK.

The Gross Deal:

If the promoter is not VAT registered but the band is. The band’s fee needs to be considered including the VAT for the sake of the split. Then at the end of the process VAT is deducted to get the band’s net fee and the VAT is added back into the invoice to arrive back at the full fee. Remember a NON-VAT registered promoter will not be charging VAT on their ticket sales so they will have more money coming in for every ticket sold. (Tip, your artists will make more money if the promoter is not VAT registered)

Neon TaxVAT ON TICKET SALES:

A VAT registered promoter sells tickets, so they need to collect VAT in the price of each ticket. VAT isn’t stated in the price for the ticket buyer, it is just included in the price. To work out how much VAT is in a ticket you need to divide the face value by 1.2 (when VAT is 20%).

For example, if the ticket is £10

Then you Divide 10 by 1.2 = 8.33 this is the net amount the promoter receives.

The difference is the VAT i.e. 10 minus 8.33 = £1.67 is the VAT.

£1.67 is 20% of 8.33 and the sum of both together is £10.

Assuming the promoter is VAT registered then in a show settlement, the VAT is taken off the gross income. Then all the show costs are also recorded as net costs, since the promoter will be reclaiming the VAT on these.

(Strictly speaking the net ticket income after VAT, is the same as Net Box Office Receipts, however, as mentioned in my previous post, NBOR is often quoted in the UK after PRS, Box Office Commission, and credit card payments have been taken off. This is because they are levied as a percentage of the net income after VAT.

VAT ON AGENCY COMMISSION

If the agency is VAT registered and the band is resident in the UK, then VAT must be added to the commission the agency charges the band. This means that for non-VAT registered bands, the agency’s commission is higher than for VAT registered bands who can reclaim the VAT. Unfortunately, there is nothing that can be done about this.

If a VAT registered band is working outside the UK, as we have said, they don’t have to charge the foreign promoter VAT on top of their fee. However, the work the agent does booking the show is done in the UK, so there would still be VAT on the agency’s commission invoice for that show.

VAT AND ARTISTS FROM ABROAD

If the band is based outside the UK, then the agency doesn’t have to charge the band VAT on its commission invoice. This is a bonus for foreign bands! However, the foreign band’s fee will become liable to another type of tax, called the Foreign Entertainers Tax – this is administered by a dedicated department of HMRC called the Foreign Entertainers Unit and the tax itself is usually abbreviated to FEU after the Unit that collects it – FEU is the subject of a whole separate post… you gotta love those folks who collect the tax…

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