Taxable supply?

VAT threshold query

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I've searched VAT notes and asked helpline to no avail so if anyone can clarify it would help...

I have a freelance musician client who is likely to reach VAT threshold based on income received from performing in West end theatre shows. (My first close to this limit).
However, included in the income are several amounts which, although paid to her, were for deps which covered on certain nights she couldn't play. It's common in the industry that freelance musicians can substitute for others.  The mechanics are that 100% of the fee is paid by her to the dep. 

my question is; can these amounts be disregarded as HER taxable supplies on the basis she did not physically supply the contracted service (which would avoid her having to register for vat) and therefore become the taxable supply of the dep, even though she was in receipt of the fee (which she then has as a contra expense for accounts purposes)?

Replies (8)

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By DKB-Sheffield
03rd Jun 2023 23:50

Whenever faced with any sort of VAT quandary, my mind automatically switches to Jason's oft-quoted question...

"Who is selling what to whom?"

In your case, you may want to consider... "who is contracting with whom?"

Is the dep contracted to 'the show', or is your client merely fulfilling the 'requirement to substitute' clause of their contract?

Albeit on a much smaller scale, and with much smaller figures, I have depped, have sourced deps (to dep for me), and have arranged deps (for and on behalf of an ensemble). Whilst VAT has never (yet) had to be a consideration, the 'contract' has generally followed the principle of who engages with the dep.

Consider the 'contract' (however informal) as that should help determine the VAT treatment.

Thanks (3)
Replying to DKB-Sheffield:
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By Hugo Fair
04th Jun 2023 00:42

100% to your last sentence ... to which I'd only add that, if there isn't a specific contract between the main engager/promoter and the dep (who turned up on the night), then the default contract is likely to be the one with OP's client.

If I book my plumber and on the day he sends instead one of his associates, then:
* I may have the right to refuse to use this other person (a contractual matter), but
* If I accept the replacement then that'll be under terms of the original contract - and treated as a VATable supply made by the originally contracted plumber.

Unless there is a contract to show otherwise, OP's client has retained the original contract and is making a supply of services (just not delivered by herself) ... and so retains the benefit of an ongoing contract that is not broken by engager contracting with someone else.

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Replying to Hugo Fair:
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By DKB-Sheffield
04th Jun 2023 01:06

Hugo Fair wrote:

Unless there is a contract to show otherwise, OP's client has retained the original contract and is making a supply of services (just not delivered by herself) ... and so retains the benefit of an ongoing contract that is not broken by engager contracting with someone else.

I would certainly agree. In the 'pro' world, the requirement to provide a dep (at the musician's cost) is usually contractual. The dep is effectively a subcontractor. This requirement tends to blur (as do 'contractual' obligations) as you move lower down the chain to (say) the semi-pro level.

I was certainly erring towards the OP's client making taxable supplies (as well as the dep making taxable supplies to the OP's client). However, without seeing the relevant contracts, there is no certainty (hence my being slightly cryptic in my response).

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Replying to Hugo Fair:
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By actingsilly
04th Jun 2023 01:20

Thanks to you both.
This is indeed what I suspected. I was somehow hoping there had been a precedent set somewhere, perhaps specific to performance, where supply of service is deemed to relate solely to the individual actually performing, whether contracted or not. It’s a shame because the amount she’s depped out over the last 12 months takes her ‘earned’ income to well below registration threshold.
Both she and I are inclined to err on the side of caution and register although I have suggested she could just ensure she stays below the deregistration threshold for the next 12m but turning down work isn’t the ideal solution.

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Replying to actingsilly:
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By DKB-Sheffield
04th Jun 2023 19:16

Joe Shefer wrote:

Both she and I are inclined to err on the side of caution and register although I have suggested she could just ensure she stays below the deregistration threshold for the next 12m but turning down work isn’t the ideal solution.

VAT can be a scary prospect to your client. However, when all is said and done, it may not be as bad as it may seem (as you will know).

Your client has a unique skill. All musicians - however alike - are unique. Getting the right player (not just any player) is paramount to the success - of a show, concert, recital etc. It may, therefore, be possible that all of your client's engagers will happily 'absorb' the VAT (some may be able to reclaim some, or all of the VAT - depending on the particular assignment).

On the flip side is the input VAT. Acquaintances on the pro music scene can often incur many £1Ks in instrument/ maintenance/ repair costs - let alone travel, accommodation etc. That's a significant input VAT 'claim'.

The potential acceptance of engagers (to pay VAT), coupled with the ability to reclaim inputs, may actually mean your client is better off in the long run.

Clearly, not an exercise for a public forum, but a fuller analysis and understanding of the impact would be my preferred course of action (with any 'near threshold' client). I never suggest clients turn down potential income to prevent VAT registration - it is far too limiting (and potentially damaging in the long run) to suggest that. However, there are clearly times where that may be the best course of action.

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RLI
By lionofludesch
04th Jun 2023 10:37

You're going to have to look at the contract but on the basis of how you've told the story, your client is contracted to supply a musician, which may or may not be her.

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By janelm
04th Jun 2023 10:52

I specialise in musicians and have a number of west end musicians all hitting the VAT threshold or already registered - if it is like every other circumstance I have seen, then your client is paid by the show on weekly payslips under their contract with the show, and your client separately pays the deputy, so this is definitely within your client's turnover for VAT.

Many of the shows also pay pension contributions (as the musician is treated as a 'worker' but still 'self-employed') so you need to be careful you are picking up the gross total self-employed pay from the payslips and not necessarily the net amounts received in their bank account when considering the VAT threshold and date required to register.

If the client registers for VAT they likely need to charge VAT on the gross payslip amounts. My clients have been asked to invoice the shows for the VAT each month separately (as they continue getting weekly payslips/pay without VAT), so I help with preparing these invoices due to the pension complexity.

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By jonharris999
05th Jun 2023 07:20

Good point @Janelm about pension contribs.

I don't know of any musicians arranging deps and holding that this type of arrangement amounts to disclosed agency. Theoretically I can see arguments in favour of them doing so. But the normal situation is much more as Jane says (which in itself is an argument against allowing otherwise).

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