The government has announced that it will extend the VAT refund scheme which helps to support museums and galleries in providing free access to the public.
Many of the UK’s major museums and galleries allow free entry to their permanent collections. But this creates a VAT problem.
|The National Gallery of Scotland|
Museums and galleries must pay for new exhibits and for the services they need to look after their collections (such as climate control or the upkeep of the buildings in which the collection is housed) and they will usually need to pay VAT on those services. Normally, a business can reclaim VAT which it incurs, so long as that VAT is related to the business’s own onwards supply to its customers.
But providing free access to the public is not regarded as a business activity for VAT purposes. Under normal VAT rules, this would mean that any VAT paid on services which relate to the exhibits on permanent display could not be recovered. So in effect the costs of many goods and services purchased by museums and galleries would be higher by 20% (the standard VAT rate) than they would be if the museum or gallery charged for entrance.
However, since the UK government wants to promote free access, a special VAT rule was introduced in 2001 whereby certain specified museums and galleries (including London’s British Museum, the National Museums and Galleries of Northern Ireland and the National Galleries of Scotland) are allowed to reclaim such VAT. According to the government’s website, this scheme provides around £60 million of support for free access annually.