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UK Revises VAT Policy On Theater Productions

by Robin Pilgrim, LawAndTax-News.com, London

14 October 2009


HM Revenue and Customs (HMRC) has revised its policy on input tax recovery on the costs of staging shows for which the theater’s admissions are exempt from value added tax (VAT), following the Tribunal decision in the case of Garsington Opera Limited.

Garsington Opera incurred input tax on the costs of putting together its own "in-house" operatic performances at Garsington. HMRC maintained that the input tax was irrecoverable because whilst putting on operas was the core of Garsington's business, the production costs were directly and immediately linked only to exempt admissions. Garsington argued that the input tax was partly deductible (residual) because the production costs had a direct and immediate link not only to exempt admissions, but also to taxable supplies such as corporate sponsorship, touring (supplies of the production to an outside concert hall), programs, CDs, intellectual property rights, and the occasional supplies of production props and equipment.

The Tribunal found for Garsington, having identified a direct and immediate link between the production costs and both the exempt admission and the taxable supplies in issue. HMRC has not appealed this decision and has instead revised its policy on when theaters supplying exempt admission can treat input tax incurred on production costs as residual.

"Theaters may wish to claim input tax which … was incorrectly treated as exempt," the department stated. "They must use the partial exemption method in place when the input tax was incurred unless there are exceptional reasons why an alternative method is needed in which case full details should be submitted with the claim. Theaters using the standard method must consider the SMO (Standard Method Override) when making a claim and all claims are subject to the normal time limits."


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