Under the normal rules, a body can only reclaim VAT on the goods and services they purchase which are used to make an onward taxable supply. Accordingly, a museum or gallery that does not charge for entry would not be making taxable supplies and therefore would not be able to recover the VAT it incurs.
What has changed?
In a bid to encourage free access to galleries and museums the Government has now allowed museums and galleries to recover VAT incurred on most goods and services purchased in order to grant free admission to their principle collections.
By way of example, museums and galleries may be able to recover VAT on the cost of:
- acquiring, importing and storing the items and collections to which the public has free access;
- cleaning, repairing and restoring them;
- extending or maintaining part of the museum or gallery where the items are housed, including cleaning that area and making it secure;
- providing free lectures, audio guides etc; and
- advertising and promoting the free items and collections by any other means, including the internet.
The HMRC have also indicated that areas such as office space that are off limits to the public, but used for administration purposes in connection with free admissions would also be subject to the scheme.
Who is eligible to claim VAT?
To qualify for this scheme, museums and galleries must ensure the public has free access to the main collections on display. (However, they may occasionally charge people to see some exhibitions without disqualifying themselves from the scheme).
The current eligible bodies are listed in the annex to VAT Notice 998 here. However, bodies can apply to be included in the scheme.
To be eligible for the VAT refund scheme, museums and galleries must apply via the relevant body (e.g. the Department for Culture, Media and Sport). They must:
- Be open to the general public for at least 30 hours per week, without exception
- Offer free entry, without prior appointment
- Hold collections in a purpose-built building
- Display details of free entry and opening hours on the museum website
Museums and galleries will also be required to complete a strategic business case as part of the application process.
If they are admitted to the scheme museums or galleries will be required to provide evidence confirming an obligation to providing or continuing to provide free entry as well as visitor figures on a bi-annual basis.
The completion of an application does not guarantee admission to the scheme, the decision to include a museum or gallery is ultimately made by ministers.
The closing date for this round of applications is Friday 24 June 2016. Applications will then be processed, reviewed and if successful added to the scheme in due course. Another round of applications will follow immediately after, with a closing date in June 2017.
In summer 2016 the Government also intends to consult on a new corporation tax relief, effective from 1 April 2017, designed to encourage museums and galleries to develop creative new exhibitions and display their collections across the country. The relief will be available for the costs of developing temporary or touring exhibitions.