VAT – Input tax recovery by theatres
Theatres need to be aware of a change in policy as regards the VAT recoverability of production costs incurred in producing a performance. Previously, these costs were treated as irrecoverable. The change in policy by HMRC follows a recent Tribunal case won by an opera company.
The opera company had argued that the production costs of putting on an opera were residual as they related both to exempt admissions to the opera as well as being a cost component of taxable supplies such as corporate sponsorship and the sale of programmes and CDs. HMRC had argued that the production costs related solely to the VAT exempt admission tickets and therefore that any VAT incurred on productions costs was irrecoverable. The Tribunal ultimately found for the opera company.
HMRC, having decided not to appeal the judgement, have announced this change in policy. With immediate effect production costs can be treated as residual where they relate to specific taxable supplies as well as exempt admissions.
HMRC have provided, in R&C Brief 62/09, a number of examples such as where the production will be touring i.e. produced at an outside concert hall.
This new policy by HMRC creates an opportunity for theatres to make backdated input tax claims subject to the usual partial exemption rules and time limits.