VAT Planning for Film and TV production businesses
The UK’s film and TV industry is thriving, making it crucial for production businesses to understand VAT planning. Value Added Tax (VAT) affects their registration, tracking, filing, and payment processes. We will address discuss key aspects of VAT planning for film and TV production businesses, including registration thresholds, filing options, VAT schemes, rates, returns, and the treatment of VAT on expenses. Understanding these topics helps businesses comply with HMRC regulations.
VAT Registration
Companies or self-employed individuals must register for VAT with HMRC if their business turnover exceeds or is expected to exceed the specified threshold each financial year. You can find the current registration thresholds on the HMRC website. However, businesses can also make a voluntary election to register for VAT, even if their turnover is below the threshold or if they have dealings with other EU countries that require registration. The registration process can be completed online, and upon successful registration, HMRC provides a unique reference number required for filing VAT online.
VAT Filing and Payment
Once companies and individuals register for VAT, they generally have to account for VAT on a quarterly basis. However, there is an option to file monthly VAT returns if preferred. This option may be beneficial for productions with minimal output VAT, as it allows for earlier VAT reclaims and helps with cash flow. VAT returns should be filed on time and payments made before the payment deadline to avoid fines. HMRC offers various payment methods, including direct debit, online payment, or payment at a bank.
VAT Schemes
In addition to standard VAT accounting, HMRC offers several VAT schemes that may be beneficial for film and TV production businesses. These schemes provide alternative methods of accounting for VAT and can help simplify the VAT process.
Cash Accounting Scheme
Businesses can account for VAT only on items that they have paid, thanks to the cash accounting scheme. This scheme is an alternative to the accruals basis, which accounts for VAT on invoices dated in the relevant quarter, whether they are paid or not. Businesses must consistently apply the chosen accounting basis each quarter.
Flat Rate Scheme
The flat rate scheme is available for businesses with turnover below a certain level (currently £150,000 as of March 2020). Under this scheme, businesses still charge VAT on sales invoices at the usual rate but pay HMRC a reduced fixed percentage of the VAT charged. However, businesses using the flat rate scheme cannot claim input VAT, as the reduced VAT paid covers potential input VAT.
Annual Scheme
The annual accounting scheme allows businesses to make equal quarterly or nine monthly payments of VAT on account throughout the year. These payments are based on the VAT paid in the previous year. At the end of the year, businesses only need to complete one VAT return. If they have overpaid, they can claim a refund from HMRC, and if they have underpaid, they make a balancing payment.
VAT Rates
The standard rate charges most UK VAT, but there are exceptions. Some items are zero-rated, meaning they are subject to VAT, but the applicable rate is zero percent. Additionally, certain items are exempt from VAT, such as insurance and interest charges. It is crucial for film and TV production businesses to understand the VAT rates applicable to their activities to ensure accurate VAT accounting.
VAT Returns
When filing a VAT return, HMRC focuses on the numbers in boxes 1 and 4, which represent output VAT and input VAT, respectively. . Companies should keep separate nominal accounts for output VAT and input VAT and reconcile the nominal ledger VAT accounts with the net VAT payable on the VAT return.. Companies must investigate and resolve any discrepancies before submitting the VAT return.
Making Tax Digital
HMRC’s rules for Making Tax Digital for VAT require VAT registered businesses with a turnover above the VAT registration limit to follow them from April 2019. This initiative aims to digitize VAT records and requires businesses to submit their VAT returns using compatible software. Before making VAT returns, businesses need to authorize their software for this purpose.
VAT on Filming and Location Agreements
Traditionally, treating access to land or property for filming as a right over land did not involve charging VAT unless additional services provided were ancillary or apportionment was necessary. However, following the ruling in the Harewood Estate case, estates and country houses used for filming should now typically charge VAT for film income. Location agreements may vary in terms of services provided, such as electricity, toilets, parking, and accommodation. Even if owners have existing HMRC rulings stating that film income is exempt, these exemptions can be overturned. Therefore, it is advisable for owners to charge VAT where commercially achievable, as collecting VAT after the event can be challenging.
Treatment of VAT on Expenses
The treatment of VAT on expenses is an important consideration for film and TV production businesses. The production can reclaim VAT on disbursements, which are items where ownership transfers to the production. However, the production can only reclaim VAT on personal expenses if employees or non-VAT registered freelancers incur them, and the production keeps the original receipts.. VAT registered freelancers must invoice for the net amount, with VAT charged on top, for the production to reclaim the VAT. Fuel receipts follow specific rules, such as fuel scale charge rules, when claiming VAT. These guidelines also apply to actors, extras, and other casual workers engaged in film, TV, or similar productions.
Conclusion
VAT planning is a crucial aspect of financial management for film and TV production businesses in the UK.
Please feel free to Book a free consultation with us today to plan your VAT affairs efficiently.