Literary festival directors have written an open letter to the Treasury after being hit with a 20% VAT rate on sales from their pre-recorded events instead of being charged a lower 5% rate announced during the pandemic.
Cheltenham Festivals finance director Adrian Farnell, Hay's finance director Tania Hudson, Stratford Literary Festival director Annie Ashworth and the British Library's head of events, Jon Fawcett, are calling on Chancellor Rishi Sunak to address the disparity.
Last year, Sunak's announced a reduced rate of VAT at 5% applied to ticket entrance for entertainment events such as festivals. However, the reduced rate is now only applicable to events which do not involve pre-recorded material—a blow to many festivals that created digital content and invested in "players" to stream their content as part of online or hybrid models during the pandemic.
Some digital events such as cinema screenings qualify for the reduced rate of VAT, while others that include pre-recorded material, including some digital author events and festivals, do not.
Farnell saidr: “Festivals of all types have been massively affected by Covid along with most other sectors in the economy. Many festivals have been grateful recipients of government-funded assistance and in some cases that has enabled them to distribute their content digitally helping to keep their audiences entertained and enthused.
“To charge VAT at 20% on pre-recorded, digital events when those same events, produced live, benefit from the reduced VAT rate of 5% or the cultural exemption to VAT makes no sense and further harms the sector.”
Ashworth is particularly concerned that the decision will adversely affect debut writers.“The Treasury’s decision to charge VAT at 20% on revenues from pre-recorded events, as opposed to 5% Covid easement on live digital events, will hit hard literary festivals that do not have cultural exemption from VAT or who have a watch-back facility,” she said. “This is an absurd decision at a time when we have continued to work hard to promote authors via digital events, especially debut authors, who have published during Covid in a very challenging year for them despite our revenues having been impacted on enormously.”
The open letter in full:
We would like to bring to your attention an anomaly in Covid-adjusted VAT rates which will have a major impact on many in the cultural sector.
As with all involved in hospitality and entertainment sectors, the arts and culture industry has suffered enormously during the pandemic; literature and other cultural festivals represent a significant proportion of the industry and most are in the SME or below category in terms of size, and as a result their financial resources have been under huge stress. For the majority of the last twelve months live performances have not been possible and the sector has had to embrace digital distribution of its content for both live and pre-recorded events and via "Player" style offerings (pre-recorded by definition).
The industry includes commercial and not-for-profit enterprises many of which are VAT registered. In the not-for-profit sector many of the enterprises benefit from the cultural exemption to VAT. The Chancellor's announcement of a reduced rate of VAT of 5% was welcomed by all in the industry as it applied to ticketed entrance to a host of entertainment facilities including festivals. However, we note that the reduced rate is only applicable to events which do not involve pre-recorded material. So the large amount of digital content produced by festivals, including recordings of events that were originally put on live to either or both live or online audiences, does not benefit from the reduced rate of VAT. In addition, for those entities which are culturally exempt from VAT, tickets or subscription income for pre-recorded material is subject to VAT at the full rate.
We believe this a significant anomaly as the content, and hence the service supplied, is the same regardless of whether it is broadcast live or in pre-recorded form. We would like to propose that the reduced rate of VAT (or zero VAT for those who are culturally exempt) should apply to all ticketed or subscribed for digital events regardless of whether they are live or pre-recorded. It is worth noting that cinema entrance tickets qualify for the reduced rate of VAT; by definition, cinema content is pre-recorded and we see no difference in the case of digital festival content.
On behalf of all those affected in the industry, we ask the Chancellor of the Exchequer, Rishi Sunak, to address this disparity.