Theatres across the land have reason to celebrate a recent VAT ruling.
The income from the sale of theatre tickets is exempt from VAT. Normally, when a ‘supply’ in VAT terms is exempt from VAT, the related input VAT is not recoverable. Where supplies are ‘mixed’ – comprising both VATable and exempt supplies, VAT on the costs incurred is recoverable in part.
It had been thought that since theatres derive the large majority of their income from ticket sales, they could not recover any of the related input VAT.
Recently, however, one theatre successfully argued in the High Court that the input VAT on a payment made to a production company for the right to show a performance was partly recoverable, because the cost was not solely related to the ticket sales income.
As a result, theatres will in future be able to recover an appropriate proportion of the input VAT on such expenses, unless HM Revenue and Customs successfully appeal the decision. Theatres which have failed to recover VAT in such circumstances in the past will also be able to submit claims to do so, within the normal time limits (which are themselves under scrutiny in the courts).