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VAT Advice, a specialist consultant, offers support to leisure-time music groups managing venue tax.
For music groups and organisations, the world of tax and finance should seemingly be simple – charitable status equals zero VAT. Groups are often under the threshold themselves and don’t find that their practices are ‘VATable’. However, much like an intricate composition, there are surprises and exceptions when transacting with other suppliers and businesses, such as for venue and room hire.
One common concern which frequently arises is the sudden decision by a venue to charge VAT when they previously didn't. This change can be puzzling, especially when you are looking for ways to minimise costs. Why has the venue suddenly opted to tax?
When a previously VAT-exempt venue decides to charge VAT, it's often due to the venue becoming VAT-registered. This decision allows the venue to recover VAT on its own costs, making it a business decision rather than a deliberate attempt to burden music organisations. By opting to tax, the owner charges VAT on the rent for the space. This allows them to reclaim any VAT on expenditure incurred (such as roof repairs, plumbing and electrics etc.).
Essentially, the venue is opting to tax an otherwise exempt supply of space, and this change can have financial implications for the music groups utilising the venue's facilities.
What can you do?
One common question we receive is whether a music organisation's charitable status can be used to disallow the option to tax, thus saving money. Unfortunately, charitable status alone does not automatically exempt a charitable organisation from the VAT charges implemented by the venue. The venue's decision to ‘opt to tax’ (charge VAT) is typically based on its business strategy, and charities are not immune to these adjustments. Recovering the VAT you are charged may be possible. The charity itself can be VAT-registered even if you are trading below the mandatory VAT registration threshold. It does have certain advantages. However, it also comes with extra financial complexity and administrative burden, such as filing digital tax returns (which may also have a cost). For small charities, the benefits of voluntary VAT registration can be outweighed by these factors.
While the decision of a venue to charge VAT may initially seem like an unwelcome tune, music organisations can navigate these changes strategically. By understanding the reasons behind the venue's decision...organisations can continue to harmonise their need with fiscal responsibility, in the ever-evolving landscape of the music industry.
Or you could recover the VAT in other ways depending on your use of the room. For example, use for performances versus rehearsal, while both activities may occur within a venue, the VAT treatment can differ.
Performances: If your music organisation is hosting a public concert or performance, the venue's decision to charge VAT may have a direct impact on ticket prices and overall event costs. It's essential to factor in these changes when budgeting for such events.
Rehearsals: Rehearsals, on the other hand, may not be subject to the same VAT implications as performances. If the venue charges VAT for using space for rehearsals, it's crucial to assess whether this cost can be absorbed or if alternative rehearsal spaces without VAT implications are available. Or if you are VAT registered, whether it can be claimed back.
The tricky thing with room hire is that depending on the circumstances there could be costly consequences for the venue owner which means if there is any doubt, VAT will be charged. There are lots of VAT pitfalls relating to room hire, and there is no one-size-fits-all scenario, which makes it incredibly complex for the venue owner.
While the decision of a venue to charge VAT may initially seem like an unwelcome tune, music organisations can navigate these changes strategically. By understanding the reasons behind the venue's decision, differentiating between performances and rehearsals, and exploring avenues for negotiation, organisations can continue to harmonise their need with fiscal responsibility, in the ever-evolving landscape of the music industry.
To ensure that you understand the correct VAT treatment or recovery of any room hire scenario or chat about whether it’s advantageous for you to be VAT registered talk to us at vatadvice.org to get specialist VAT advice.
Making Music Members receive a free initial consultation with VAT Advice – find out how through the VAT resource
