VAT disparity with input and output tax for events businesses

[Steve Clifton]

I have a VAT conundrum for you which involves HMRC’s current reduction of input tax for the hospitality and events industries. I hope someone can help me because no-one else seems to be able to.

I run an events business based on ticket sales where artists are paid as a percentage of the revenue.

As a VAT registered company this has always been a simple calculation to do. For example, if you’re paying a 90% share of the net revenue to the artist who is also VAT registered then this is obviously 90% of net revenue plus 20% VAT.

But since the input tax is now 5%, the artist share is 90% of the remainder but as the supplier they are still invoicing for 90% plus 20% VAT output tax. This calculation takes the total invoice over the gross revenue earned via ticket sales.

See my example where I’ve created two scenarios. The first column is calculated using the 5% rate. The second is calculated using the 20% rate:

,"3":12000}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>12000

,"3":12000}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>12000

,"3":11428.57}”>11428.57

,"3":10000}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>10000

,"3":10285.71}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>10285.71

,"3":9000}”>9000

,"3":2057.14}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>2057.14

,"3":1800}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>1800

,"3":12342.85}”>12342.85

,"3":10800}” style=”overflow: hidden; padding: 2px 3px 2px 3px; vertical-align: bottom; text-align: right;”>10800

Gross revenue			Gross revenue
Net revenue (5%)			Net revenue (20%)
Artist (90%)			Artist (90%)
plus VAT (20%)			plus VAT (20%)
Total			Total

This cannot be right, can it? As the event promoter I would be instantly in the red. Across multiple events I would be quickly bankrupt.

Does anyone know how to get around this particular issue without forcing the supplier to reduce their percentage share? – which is highly unlikely I might add.

[Spidersong]

Just set up the contracts so you don’t pay them their money, or at least all their money, until you receive the VAT back from HMRC. Your worry seems to forget that the VAT they charge is only a temporary cost to you, so you just need to fund a temporary cash flow deficit or make sure that the outflow is after the inflow.

So in scenario 1 after VAT is paid and claimed you receive £1,142.86 and in the second scenario you only get £1,000 so you’re better off with the 5% rate.

[Author]

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