How VAT works for entertainers
VAT for entertainers and actors should be fairly straightforward. The sources of confusion are generally the treatment of unusual income streams and unusual types of expenditure.
When Must I Register for VAT?
You must register for VAT if your ‘taxable turnover’ exceeds the VAT registration thresholds. This is currently (20/21 limits) – £85,000.
‘Taxable turnover’ will be the money you receive in return for making ‘taxable supplies’ in the UK. Crucially this does not include money obtained from employment. It follows that an actors (or other entertainment professionals) employment status is critical. There is no VAT due on salaries.
A ‘taxable supply’ is one that would be subject to VAT if it was made by someone registered for VAT. Most performance supplies made by UK based actors will constitute taxable supplies. For example, performing in a play or film, voiceover work or technical work. One possible exception might be work relating to education, which can, in some circumstances, be exempt from VAT. Another exception is certain overseas levy income, such as blank tape levy income, which is outside the scope of VAT.
Two Registration Tests
You need to register for VAT if: either you expect to receive payments for taxable supplies exceeding £85,000 in the next 30 days or your turnover from taxable supplies has exceeded £85,000 in the last 12 months.
Note that the 12-month registration limit is a rolling limit. If you think there is a chance you may exceed it, then don’t just wait for your accountant to tell you at the year-end; actively check it. Otherwise, you will get penalties for late registration. You might also find it more difficult to charge VAT to your customer if you are late registering. Very often, theatre companies, in particular, are created to put on particular shows and cease to exist after the run. If you try and charge them VAT well after the event, you won’t get very far and will have to absorb the VAT cost yourself.
Voluntary VAT Registration
You can also voluntarily register for VAT. You might wish to do this if your client can recover all of the VAT you charge them, as this will allow you to recover any VAT you incur on your expenditure. Generally, commercial film production companies and larger theatre companies can recover VAT. The main exception will be charity run venues that are covered by the VAT cultural exemption. These cannot recover all of the VAT they are charged and would clearly prefer it if the actors they use don’t charge VAT. If you do wish to register voluntarily, remember you will only gain if you can charge the VAT on top of your fee. This means if you are covered by terms that are VAT inclusive, a voluntary VAT registration will cause you to lose out.
If you are registered for VAT, you should inform those organisations that send you money under self-billing arrangements, such as BECs and the BBC.
Deregistering from VAT
If your circumstances change and you no longer earn sufficient income to be VAT registered, you can deregister. The VAT deregistration limits are normally slightly lower than the registration limits. To deregister, you must apply to HMRC explaining why your taxable turnover will not exceed the limit in the next 12 months. One thing to remember with a VAT reregistration is that you will need to account for VAT on items you still own that you have recovered VAT on in the past. So if you have purchased, say, musical instruments or props you still use, then there will be a VAT charge based on their market value – unless the VAT due will be less than £1,000, in which case there is no VAT due.
How does VAT work?
If all of your supplies as an actor/performer are subject to VAT, then it’s not complicated. You charge VAT on your sales and can recover VAT you incur on expenses related to your business.
When you are VAT registered, you charge VAT on the taxable supplies you make in the UK. (see above) You also issue a VAT invoice. However, in practice, many performers have the invoice issued for them by their clients – self-billing invoices. This is true of invoices issued to the BBC and also various Equity administered royalty payments.
For my guide as to how VAT works, see Basics of VAT Guide
The VAT system allows the recovery of VAT incurred on goods and services purchased for the purposes of a taxable business. It does not allow the recovery of VAT purchased for non-business such as a private purpose. Where the VAT relates to both a business and private purpose, it must be apportioned. The apportionment you choose here will normally be the same as you use for income tax purposes.
Actors and performers sometimes incur costs for their business which are unusual. For example, they might buy clothes, makeup or props. Providing the business purpose is clear, at least some of this VAT should be recoverable. If you experience difficulty on a VAT visit, then get in touch. See Entertainer Services
There is some expenditure where you are not allowed to recover VAT – the purchase (not lease) of cars and business entertainment. See VAT Recovery Guide
Accounting for VAT
You normally account for VAT on a quarterly VAT return but can apply to complete monthly returns. There is also the facility for annual VAT returns. Here you still make quarterly provisional payments based on your previous year’s figures. These are then adjusted when you submit the return. The advantage of annual accounting is that it is easier to delegate tax compliance to your accountant. Although VAT compliance should not be complicated.
Regardless of the VAT periods, you choose you can either account for VAT on a cash basis or based on the date of your invoices – assuming you turn over less than £1.35 million.
Standard Contract VAT
Equity standard contracts are normally silent on VAT which means that VAT is assumed to be included in the contract amount unless the artist specifies otherwise. VAT isn’t normally a problem with commercial film, television or theatre as these generally obtain full VAT recovery. But it can be if work is being done for a charitable body and cannot recover VAT. If attempts are made to charge VAT on top of the agreed fee in this case, then the charity venue may refuse. If you are VAT registered, make sure that the person you intend to bill knows this in advance.
The Flat Rate Scheme – Simpler, and you may pay less
There is an alternative way of accounting for VAT called the Flat Rate Scheme. Under this scheme, HMRC has estimated the amount of VAT they would expect various professions to pay over and expressed this as a % of turnover. When you apply the flat rate scheme instead of issuing invoices to clients and adding up your total VAT on sales and purchases, you just apply the flat rate % to total sales. For persons working in the entertainment industry, the flat rate % is currently 12.5%. There is a discounted rate applied in the first year of use.
For example, an actor earns £20,000 in a VAT quarter. They have incurred £500 of VAT on expenses in that period. Under the normal VAT rules, they would charge (20,000 x 20%) £4,000 sales (or Output) VAT and recover the £500 (input VAT). Meaning they would pay £3,500 over to HMRC.
Alternatively, under the flat rate scheme, they apply the flat rate % to their VAT inclusive turnover. £24,000 x 12.5% = £3,000. No separate claim for VAT on purchases can normally be made.
In this example, the actor pays to HMRC £3,000 under the flat rate compared to £3,500 under normal VAT accounting rules. However, this advantage may not be true in all cases – it depends upon the type of costs incurred.
The problem has been that the scheme is so generous HMRC brought in change on April 1st 2017 that greatly limit its application. These mean that unless you spend at least 2% of your turnover (minimum £1,000) on non-capital goods, you will have to apply a flat rate of 16.5%. This will likely result in a far worse VAT position than would be the case under the normal VAT rules. Although it’s described as an anti-avoidance measure, it’s hard to see there will be many entertainment professionals that will not fall foul of the new limit. This is because generally, they buy few goods and lots of services.
The question an actor or performer has is now whether the amount of additional VAT they can recover by not using the flat rate scheme is worth the pain of having to keep VAT records that show how much VAT has actually been incurred on business purchases.
The VAT system distinguishes between services provided to a business customer and a private individual. In most cases, actors and performers and other entertainment professionals will supply other businesses. In this case, the supply for VAT purpose takes place where the customer belongs. This is likely to be where they are invoiced. If they are outside the UK, then you don’t need to charge them UK VAT, but if they are based elsewhere in the EU, you will need to obtain their EU VAT number and issue them with a special type of invoice.
Where the performance takes place is no longer relevant for determining where VAT is due on services provided to another business. It is still relevant if the supply is made to a private individual -such as a party booking. In this case, an EU VAT registration may be needed.
If you have any VAT issues you want to chat through, then please get in touch. I don’t charge for an initial chat. See what my clients think here.