VAT on membership fees

IainMAAT Registered Posts: 5

I have a query regarding the need to charge VAT on membership fees at the theatre I work at. Our income is getting close to the stage where VAT registration is mandatory so I've been looking at the website. I've found some information stating that (assuming my understanding is correct) VAT would apply if there are substantive benefits.

Our annual membership costs £25 for adults, £13 for people on benefits and £10 for over 60's. In return members receive £1 off tickets to each show, a newsletter and also they are able to take part in productions if they so wish.

Would these benefits be sufficient in order for us to charge VAT on memberships if we were registered? I ask as I planned to track VAT for the forthcoming financial year without registering so I can iron out any issues I may face before we register so that we get it right when it matters. If we are duty bound to charge VAT on membership fees then the need to register will become more urgent.

I also ought to mention that the theatre is a registered charity so would this make any difference?

Any help would be much appreciated.

Iain Hay


  • RyanMIP
    RyanMIP LincolnshireRegistered Posts: 50
    May I respectfully suggest the charity appoints an accountant. This is for two reasons:

    Firstly, they can answer your VAT question, and if they get it wrong you will have someone to sue (rather than relying on an anonymous response on a forum).

    Secondly, I have looked at the accounts of the charity in question. Sadly, they're not particularly close to complying with charity law or accounting requirements.

    I appreciate your response will be something along the lines of: "we are a charity, we cannot afford an accountant".

    However, as a charity, you are dealing with public money; you (the trustees) have statutory duties which include:

    -complying with the charity's governing document and the law;
    -managing the charity's resources responsibility; and
    -ensure the charity is accountable.

    I am of the view that the above reasons far outweigh the cost.

    I hope the above is taken to be constructive, as it is intended.
  • phoenixd
    phoenixd LondonRegistered Posts: 55
  • IainMAAT
    IainMAAT Registered Posts: 5

    Thanks for your reply.

    The actual purpose of my original post was to ascertain whether we needed to register sooner rather than later. If there is no immediate hurry to register for VAT, in my opinion at least, it makes sense to track the figures for a financial year ( ours has just started hence the timing of the enquiry) in order to iron out any issues. We fully intend to seek the advice of a professional but the plan was to do this just prior to registering to ensure that we were ready to go. The more advice we seek from an accountant, the higher the costs will be. As you say we are a charity and cost needs to be considered.

    Another consideration for us is the effect on our income that a price increase would have. Raising our prices to cover our VAT obligations may lead to a downturn in members and ticket sales. It's my intention to bring the subject up at our forthcoming AGM in November so I can explain the reasons for the price increases before we make them so the impact can be minimised. If we are obliged to charge VAT on membership fees I won't necesarily have the chance to do this.

    Regarding your comments on the standards of the accounts produced. I'm more than happy to review what I do, it would be a missed opportunity not to do so given your comments. However, it would appear that you're offering an opinion rather than fact. They cannot be "not particularly close to complying" they either comply or they don't.

    I'm also confused as to how you came across the accounts. I'm aware that they are online so it's possible you have seen them. However, there's at least one other theatre in the UK with the same name, a name which as far as im aware hasnt been divulged on this board. Would it not have be prudent for you to have asked some questions to ensure that you had seen the correct accounts before making your comments?

  • IainMAAT
    IainMAAT Registered Posts: 5
    Hi phoenixd

    Thanks for supplying the link. However I have already seen this information and this is where my query stems from. The issue i have is what is classed as a substantive benefit. I take it to mean either an ongoing financial benefit or an opportunity to receive a financial benefit that is greater than the sum of the membership.

    If it's the former then I'm pretty certain that we will have to include membership fees in the income that is subject to VAT because of the discount members receive on tickets. If it's the latter then it's open to interpretation. Members who pay £25 are likely to receive £10 per year in discounts ( £1 per ticket 10 productions per year). However there is nothing to stop members from watching each show more than once and getting the discount each time so the value of the benefit can easily exceed the original fee paid, though I doubt anyone actually does this.

    My gut feeling is that we will need to register sooner rather than later but my concern will be the effect a price increase will have on our income. This is the reason why we are waiting until we are obliged to register rather than registering early.

  • phoenixd
    phoenixd LondonRegistered Posts: 55
    Hi Iain

    Now back from my Sunday lunch...

    As you are dealing with a provider of cultural events and a non-profit making organisation, the subs may be EXEMPT. See Notices 701/47(4) and 701/47(7)(2).

    The 'Charities' VAT Notice 701/1(5.13) claims that the provision of membership benefits to members of a club or association is a business activity UNLESS exemption applies. It further states that 'the VAT liability of a membership subscription will depend on the benefits being supplied.' therefore, if the benefits qualify for an exemption based on 701/47 above, the subs (as long as no other benefits exist) may also be exempt.

    Hope the above helps.
  • phoenixd
    phoenixd LondonRegistered Posts: 55
    edited September 2016

    You are an accountant, and if you are able to do your own research, there's absolutely no need to pay for advice in relation to this query. It's tax accounting, not rocket science!

    Essentially, if the benefits of subs are exempt supplies, the subs are exempt. In addition to the VAT notices above and VATA 1994, Schedule 9, Group 14, have a look at VATA 1994, Schedule 9, Group 13(2).

    All the best
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