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Court Ruling To Give UK Theatres A Tax Boost

by Robert Lee,, London

26 February 2007

The UK theatre industry received a tax boost last week after the Court of Appeal ruled in favour of the Mayflower Theatre Trust Limited in its bid to recover a proportion of the VAT charged on the cost of hosting theatrical productions.

According to accounting firm Deloitte, the court's decision to reject an appeal of an earlier High Court ruling by HM Revenue & Customs will enable many theatres across the country to increase the level of claims for VAT previously overpaid, and may also reduce the costs of productions going forward.

VAT exemption on ticket income for performances staged at theatres was introduced in 1996. As a result of the exemption, theatres were no longer able to claim back all the VAT charged on related costs, meaning that for many, the cost of staging a production increased overnight. Last April, Mayflower successfully argued that the fees paid to production companies for the right to host productions were not solely related to the VAT exempt sale of tickets. The decision of the Court of Appeal reaffirms that a proportion of this VAT is recoverable, Deloitte said.

Simon Baxter, indirect tax director at Deloitte, commented:

“Whilst the High Court agreed with Mayflower, the scope of the Court of Appeal’s judgment means that many similar businesses will be entitled to seek a refund of previously overpaid VAT from HMRC."

“The judgment from the Court of Appeal confirms that there is a link between the cost of hosting shows and the production of programmes, which are taxable supplies, as well as the sale of VAT exempt tickets. This provides for the recovery of VAT on associated costs, including a proportion of the production costs.”

Baxter concluded:

“As such, I expect it to present a much broader opportunity for UK theatres and other cultural organisations to reclaim a significant amount of VAT.”

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