A VAT Guide for UK Production Accountants: What You Can (and Can’t) Reclaim
Gary Bell
Navigating Value Added Tax (VAT) isessential forproduction accountants, assistant accountants and traineesworking on UK film and TV productions. This guide breaks down what you need to know to confidently manage VAT on UK productionexpenses–when toreclaim, when to skip it, and how to keep things compliant.
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Value Added Tax, or VAT, is a consumption tax on most UK goods and services. If your production is VAT-registered,you’ll charge VAT on your own taxable services and can reclaim VAT paid on eligible purchases. Knowing when and how to reclaim can save your budgetand help youto avoid penalties from HMRC.
New to VAT?Start here for a comprehensive overview of what it is and how it works.
What are theVAT rates?
In the UK, three primary VAT rates apply:
- Standard rate (20%) applies to most goods and services, including but not limited to equipment rental, lighting rigs, sound services, andVAT-registered crew members.
- Reduced rate (5%) covers certain energy-saving items like LED lighting, insulation, or EV chargers.
- Zero rate (0%) applies to some socially beneficial goods and services, such as children’s clothes, printed scripts, or crew travel via bus ortrain.
It’s important to note that zero-rated VAT isnot the same as VAT-exempt items or items whichare outside the scope of VAT.For a complete list of applicable rates, see.
By understanding these distinctions, production accountants canbe confident that they are paying and reclaiming the correct amount of VAT andmaintaining compliance with HMRC regulations.
Now,let’slook at theguidelines for reclaiming VAT.
Whencanfilm and TV productionsreclaim VAT (and whencan'tthey)?
Film andTVproductions can typically reclaim VAT on:
- Production-related services, such as equipment hire, set construction, or VAT-inclusive crew wages.
- Itemspurchased from VAT-registered suppliers,as long as the supplier provides a valid VAT invoice(more on that below).
- Costs linked to taxable supplies, meaning the production generates taxable income–such as sale of assets.
- Production-only costsused solely for the business(not personal or mixed-use).
Conversely, productionscannot reclaim VAT on:
- Non-business or personal expenses, such as client entertainment or investor dinners.
- Foreign sales taxes, like US salestax or other non-UK taxes.
- Purchases from non-VAT-registered suppliers. In this case,there’s no VAT to reclaim– regardless of what the invoice says.
- Blocked categories, including most UK hotel stays (unless part of a continuous stay over 28 days) and certain carhires.
- Incomplete or incorrect VAT invoices, like those missing a VAT number or essential details. These needto becorrected before VAT can be claimed.
These broad guidelines are good guiding principles for evaluating what VATis eligible to be reclaimed. Next,let’s talk about what you need to haveon hand forasuccessful VATclaim.
Checklist for reclaimingVAT
To reclaim VAT correctly, make surethatthe expense is solely for business purposes, andthatyou have proper documentation. For purchases under £250, a simplified invoice or receipt is sufficient.
For amounts over £250, a full VAT invoice isrequired,containing:
- The supplier's name,address and VAT registration number;
- The invoice date and a unique invoice number;
- Yourcompany's name andaddress;
- A description ofthegoods or services;
- The VAT rate(s) applied;
- The total amount, excluding VAT (this can be in any currency);and
- TheVAT amount(thismust be in Sterling)
For the full requirements and examples, see.
Under UK law, companies mustmaintainaccurate financial records for at least six years, soit’s essential to have proper record-keeping processes in place.Proper documentation will also support yourVATclaims andserveas evidence inthe case of an HMRCreview oraudit.
Can you reclaim VAT charged by self-employed contractors?
You mayalsobe charged VATbyself-employed contractors working on your productionif theirannualturnover exceeds £90,000 (as of April 2024).VAToncontractors is reclaimable,provided thatthe following criteria aremet:
- The individual is VAT-registered;
- A valid VAT invoice is issued (see criteria above); and
- Their work relates to taxable productionactivity.
Be sure to plan budgetsandcashflowaccordingly, especially forhigher-paid contractors.
Common pitfalls to avoid when reclaiming VAT
These common issues canjeopardise your VAT claim:
- Incomplete receipts: If your receipt is missing required details like the supplier’s VATregistration number, ask them tocorrect it.
- Vague descriptions or non-itemised receipts:Whether you can reclaim VAT depends on the type of goods, so receipts need to be specific.Vague descriptions like“shirts” could refer to adult shirts (standard rated) or children’s shirts (zero-rated). Likewise,“office supplies” could refer to stationary (standard rated) or books (zero rated).
- Ineligible claims:Remember thatyoucan’t reclaim VAT oncertainexpenses (like cliententertainment).
- Unregistered suppliers: Ifthere’s no VAT registration number,there’s no VAT to reclaim.
- Refundsnot reflected: If you return an item or claim a refund, make sure to update yourVAT return to reflect any VAT refunded.
- Incorrect VAT rates:When preparing your VAT return, be sure tocheckthe rate applied to each itemyou’re reclaiming VAT on.
- Partial exemption issues:Some VAT may not be recoverable if your company earns taxable and exempt income.
- Bad debts: Ifyou’re not paid, your VAT position may needadjusting.
Handling VAT oninternationaltransactions
VAT gets trickier when international suppliers are involved.To understand how your productionshould navigate VATon international vendors, here arefourcommon international VAT scenarios:
1.Importing goods (physical items)
When importing items like props or costumes,you’ll typically be charged import VAT at 20%, calculated on the customs value (item cost + shipping + insurance).
You can reclaim VAT on imported goods if:
- The goods are for business use; and
- You include your VAT number onthe customs declaration.
Productions can also avoid upfront payments by using (PVA) to defer payment to their VAT return and improve cash flow.
Example:A production imports £10,000 worth of costumes from the United States. An import VAT of £2,000 (20%) is applied. Using PVA, the production declares the £2,000 as both input and output VAT on their return, and no upfront cash payment is required.
2.Importingservices (akaintangibleitems)
When buying services (e.g., editing or VFX) from overseas vendors,place-of-supply rulesapply.
These rules state that for business-to-business (B2B) transactions, VAT isdue where the customer islocated. On the other hand, VAT is due where the supplier islocated for business-to-consumer (B2C) transactions.
Most production expenses are B2B, which means another special rule called the reverse charge mechanism applies.
When B2B services are imported from a non-UK supplier, no VAT is charged by the supplier. In this instance, UK productions must self-account for VAT by declaring both input (reclaimable) VAT and output (payable) VAT on their return. If applicable services are directly tied to theproduction’s taxable business activities, self-accounted VAT can typically be reclaimed,making it cost-neutral.
Example: A UK production hires a US-based VFX house for £5,000. The supplier does not charge VAT.The UK production must apply the reverse charge, adding £1,000 of output VAT (20%) to their VAT return. When the return issubmitted, the same £1,000 is recorded as input VAT, effectivelycanceling out the tax liability.
3.Temporaryimports forshort-term production needs
In some circumstances, productions can use the temporary admission scheme to import goods temporarily without paying full import VAT and customs duties.
To take advantage of thisoption, productions must declare their intent to re-export the items within a settimeframe using an international customs document called an.
Example:A UKproduction rents camera equipment from a US company for a two-month shoot in London.Using an ATA Carnet, if all conditions are met, the equipment enters and exits the UK without incurring VAT or customs duties.
4.International exports
Most international exports are zero-rated, meaningthere's no VAT charge, but VAT can be reclaimed on related costs.
To qualify for zero-rating, you must obtain andretain evidence– commercial transport documents, export declarations, and proof of receipt by the customer– that the goods have been exported.
These guidelines can help you manage VAT efficiently whilemaximising recoverable costs. Investing in the right software can also be a huge help.
Simplify VAT compliance with EP's SmartAccounting
NavigatingVATacross your UK productions can feel daunting, but itdoesn’t have to be.SmartAccountingis designed to streamline financial processes and simplify VAT management and compliance on UK productions.
Key features ofSmartAccounting:
- Exchange rate integration:SmartAccounting seamlessly integrates with HMRC to automatically fetch and update exchange rates to be used for VAT calculations, ensuring accuracy and compliance with HMRC standards.
- Pre-configured, customisable VAT codes: Save time and ensureaccurate processingwith pre-configured VAT codes which align with HMRCguidelines or customise your own codes to align with your existing chart of accounts.
- VAT calculated automatically on transactions:Selecting the relevant VAT code on a line item inSmartAccountingwill automatically calculate the VAT amount.
- Comprehensive VAT reporting suite:SmartAccountingoffers a diverse suite of VAT reports, including a VAT reconciliation report whichidentifies variances between VAT box totals and Trial Balance VAT totals,supportingaccurate VAT charges or claims.
- Automated tax codes for Reverse Charge and Import VAT mechanisms:SmartAccountinghelps toensureaccurate mapping to VAT report boxes, streamlining compliance and simplifying tax reporting forproductions handling complex import transactions.
- VAT discrepancy notifications:SmartAccountingincreases transaction accuracy by alerting users to VAT mismatches, enhancingcompliance and reducing errors.
- Extensive VAT guardrails:SmartAccounting enhances the integrity and accuracy of financial records by implementing robust controls over VAT code modifications and assignments.
- Prevention of double taxation in ledgers:SmartAccountinghelps to prevent overstated VAT reporting on transactions by ensuring that VAT codes cannot be assigned totransactions being coded to a VAT trial balance account.
Plus, SmartAccounting is HMRC-recognised and fully compatible with rules.
Want to find out more about how SmartAccounting can streamline VAT management and compliance across your next production? Speak to our UK team today!
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