Nick D enjoys economics – here he explains how VAT works and explores some long-term benefits that VAT relief could bring.
Can he make tax fun in 1500 words or less? Maybe, maybe not.
…but hopefully, you can leave this blog feeling educated and enthused to make the case for a VAT reduction on festival tickets. The future of your favourite festival may depend on this relief.
*DISCLAIMER* – Nick D is not clairvoyant, don’t hold him to any of these explorations.
So what even is VAT?
VAT (or Value Added Tax) is a consumption tax (a tax on spending money) applied at each stage of the supply chain. Your VAT bill is the difference between the VAT paid to other VAT-registered businesses and the VAT you’ve charged on sales.
Bored yet?
Don’t worry, it’s about to get interesting (cough). With VAT, the consumer foots most of the bill at the final point of sale.
e.g. I buy a ticket to a festival; a 20% VAT charge goes to the tax man. I’m not VAT registered so I can’t reclaim that VAT. Hence, VAT is a consumption tax.
Thanks to Xero for the graphic above.
Why is it 20%?
A lesser-known fact about VAT (facts are fun right, RIGHT?) is that there are four rates – we’re going to ignore the “Exempt” rate today but if you’re if you’re struggling to sleep tonight then click here. These rates are added to the net cost of a good or service.
The Standard Rate: 20% – this higher rate is the most recognisable of the rates. Most goods and services fall under this rate – festival tickets tend to fall under this category.
Zero Rated: 0% – applies to “essential” goods and services. Goods and services in this category include heating systems, most food, children’s clothing, and books.
The Reduced Rate: 5% – this applies to goods and services considered between the two rates above. There are no hard-and-fast rules on what falls where but from where I’m sitting, it looks like the 5% rate is applied to goods that have a net-positive impact on society. This reduced rate incentivises societal progression. Some examples are energy-saving materials permanently installed in buildings, smoking cessation products, maintenance of renewable heating systems and children’s car seats. With less of a VAT burden falling on the consumer, costs can be kept lower on these products – incentivising consumers to keep their children safe in the car, making renewable energy maintenance more affordable and giving hope to those looking to kick the ciggies (all these costs have a positive impact on society).
What’s the case to reduce VAT?
Oi! Wake up, this is where it gets good!
So, what does this all mean then? VAT relief is the crucial first step needed to keep the industry afloat; providing space to breathe. Margins on sold-out shows(yes, sold-out!) are precariously hovering around 2-3%, being suffocated over the years due to labour shortages (nice one Brexit), supply chain issues (nice one Covid) and talent fees – issues that have had such a profound impact on independents that we lost 36 shows in 2023 alone: more will be lost without the VAT relief. It’s not just the shows we’ll lose: it’s livelihoods, memories, emerging talent – the villages that build festivals…
If we make it through these choppy waters, the VAT relief can then bridge the industry from surviving to thriving (wow!). Below I’ll explore some outcomes that VAT Relief could spark in the long run.
Economic Stimulus
Our industry directly contributes to the British economy through job creation, music tourism, innovation, and the export of cultural services: more money staying in the industry could lead to higher outputs in all these vital contributions. On job creation, the relief could lead to more full-time employment, less “work-experience” positions which can sometimes be exploitative or fairer wages for the hard workers in the industry (that’s if they didn’t leave the industry during Covid). Music tourism is the idea of people travelling to a locality for a specific festival or gig: bringing hundreds (or thousands) of festival goers to an area brings further custom to these communities – hotels, hospitality, transportation and retail all benefit from this influx of people – if this potential VAT relief keeps a local festival afloat then it’ll help surrounding economy too. In R&D, the British cultural industries are redefining Research and Development, if more money stayed in the hands of cultural innovators then we could see further strides in the stunning work of our peers. It’s through this R&D that so much of our export value is generated, with 90% of its value being generated domestically. All these factors have a multiplier effect, growing the industry and enabling it to further solidify itself, maintaining its position as a global leader.
Sustainability
I’m not saying that environmental progression hinges on VAT Relief but it could prove to be a catalyst for change. Our planet’s health currently hangs in the balance and sustainability is moving up the agenda for attendees, artists, event organisers and local authorities. Unfortunately, new technologies cost money (shocking, who’d have thought it?) to develop and implement. Though suppliers across the industry are reflecting on their practices and constantly innovating, an extra 15% could accelerate the process.
Social Cohesion and Accessibility
One of the biggest joys in attending festivals is meeting people from all walks of life: the stories your new friends tell and the stories you write together – we should seize any opportunity to make shows as accessible as possible! NHS discounts, the extent to which disabled people’s accessibility needs are considered, low-income discounts, and free tickets for residents (this list isn’t exhaustive) are all vital, and shouldn’t be treated as “nice-to-haves,” but with festivals fighting to stay afloat, the financial implications of these decisions aren’t being prioritised as they could be. Mass gatherings offer hope and constructive platforms for social change so we need to make sure people from all walks of life can enter through those big beautiful steelshield gates – VAT relief could help level accelerate this.
Education and Enrichment
For both audiences and event organisers, every festival that passes offers an opportunity to learn. On an individual level, if VAT relief can keep a music festival afloat, then the learnings punters take from sharing a dancefloor with people of different ages and backgrounds can provide vital personal development. Sharing dancefloors at festivals as a young man has allowed me to see other walks of life – these opportunities can be pillars in someone’s development! More directly, keeping festivals alive allows the opportunity to nurture the next generation of event professionals. In what can be a high-risk industry (it’s super results-based), investing in less-experienced staff is commendable for any employer – in the long run, the relief could help pay for specialised training to level up current professionals or even cover an industry newcomer’s wages.
Music Tourism
Both domestically and internationally, UK music tourism is thriving. £6.6 Billion was spent in 2022, across 14.4 million music tourists both on-site (ticket sales, F&B, merch, parking etc.) and in local communities (greasy spoon on the Monday before going home, yum). Music tourism is not new though: Beatlemania brought fans in droves to The Cavern Club and the Astoria Theatre, the height of Northern Soul brought the masses to Wigan Casino and Blackpool Mecca, Stone Roses’ Spike Island gig had 28,000 guests descend upon an estuary in Widnes, and Oasis’ Knebworth show saw 125,000 arrive in Stevenage (bigger than the present-day population of the town) – these iconic moments have become woven into the history of areas (as well as being pillars of British music history). Losing festivals will mean losing these moments, the relief can help us protect them.
That wasn’t too bad, was it?
(Don’t answer that)
At present, the situation is bleak and the industry needs help. Rather than using our collective strength and expertise year-on-year to survive it’d be better if we could grow, further diversifying what a festival can be – and solidifying the United Kingdom as leaders in the global industry. There’s a host of long-run benefits from reducing VAT on ticket sales to 5% but first, we need to mobilise – the industry’s survival relies on it.
For more information head to www.fivepercentforfestivals.com.
