The Singing Accountant™: The new Very Annoying Tax threshold

There’s a lot of stuff in the media at the moment about VAT. Various ‘raids’ on school dinners (which sounds like the intro to ‘Grange Hill’ – ignore me if that one is a bit old for you!), private school fees, even claims around brassieres! However, that’s not the only area at risk of going ‘bust’ (sorry!).

I have noticed after completing hundreds of tax returns back in January, that the market has picked up post-pandemic (in the West End anyway) but some performers appear unaware of how close they are creeping to the VAT threshold, and some even went over the VAT threshold in the tax year. Now that was £85,000 before April 2024, it is now £90,000 (from 1 April 2024).

Ah, ‘breathing space’ I hear you say, sighing contently and hoping you can ignore this. Well, that would be most risky. Here’s why:

Where there’s growth, there’s tax

Many performers de-registered in the pandemic and some have not gotten around to re-registering. The problem is, HMRC won’t take that as an excuse if you ‘suddenly’ go over the threshold because in their eyes, it really wasn’t sudden. Why? Well, because the earnings in question are taken over any 12-month period, not 6 April one year to 5 April the next.

Now, post-pandemic and with the market recovering, I can see that performers are playing ‘catch-up’, squeezing more and more work into their schedules, and who can blame them? They may also be depping more out and figure that these costs mean they go ‘under’ the threshold but that is not the case. The £90,000 is based on earnings, not profit. You can have as many costs as you want (that are allowable) and they come off your corporation or personal tax calculations – but not the VAT.

Here’s the real issue – trust me, it isn’t pleasant

As you get close to the threshold (now £90,000 for anyone falling asleep at the back) you need to register for VAT and then start charging it. Now, you will need a VAT number for this which will be announced by HMRC and this is often by no means a swift process (shock horror).

If you are late registering for VAT, you may have to start going back several months and then ‘onward bill’ any VAT. If this is the case, warn the production company, fixer or your agent pronto! Check out the example below:

If you dep-out a session of a west end show, the production company or agent will normally pay the chair and then the chair will pay the dep. The money that the chair gets paid counts towards the VAT turnover and the dep costs are ‘allowable expenses’ – still with me? Now, if the person holding the chair goes and does another gig, they effectively get paid twice and therefore that double amount counts towards the dreaded threshold.

Here’s how that would play out:

Imagine the chair gets £300 per performance doing 8 shows a week. Lovely. The whole week is therefore £2,400 – easy. Now, what if they spy an opportunity across town and dep-out three of these shows to the value of £900, meanwhile snaffling £750 a pop for the shows they switch across to. Kerching!

The problem is, you must ignore the costs of the dep. You have two earnings here, yours and those earned that the dep did for you. The fact they did it makes no difference VAT-wise. So that week’s pay towards the VAT threshold is £4,650. Eek!

When it comes to the VAT threshold, it is the total earned, not ‘made’ that concerns our friends at HMRC. The dep costs are a factor in your profits and self-assessment but not the VAT threshold.

To recap, here’s the least you need to know:

1. VAT is on gross fee income, before any expenses and before pension deduction.
2. Look at it over 12 months rolling – this may involve you going back to a prior tax year to roll the fee income together
3. Look at it monthly and for heaven's sake, register pronto!

Now, there’s a lot more to it, but fear not, I’ve got you covered with my free guide which you can find here.