Glastonbury and festival season brings VAT complications

Alex Baulf, Vice president of global indirect tax, Avalara

With the festival season well under way, traders and stall holders need to be aware of unexpected seasonal spikes in income and VAT registration rules, explains Alex Baulf, vice president of global indirect tax at Avalara.

It is important to note that there is no automatic VAT registration in the UK. Today, once an organisation’s taxable turnover goes above £90,000 in any 12-month period, or they expect to cross that line within the next 30 days, they have a legal requirement to notify HMRC and register for VAT.

And there are deadlines for this. Businesses must register within 30 days from the end of the month in which they exceed this threshold. However, if they miss this deadline, an organisation can still look to register late but may face penalties.

One area where this becomes particularly relevant is during the festival season. This is a period that can significantly boost sales for small businesses, especially those in the food, drink, and merchandise sectors.

In 2024 alone, over 850 festivals took place across England, Wales, and Scotland.

At major events like Glastonbury, which attracts hundreds of thousands of attendees each year, businesses can experience substantial sales fluctuations. On top of this, pitching fees for stalls at large festivals can reach up to £15,000.

Close monitoring is key, and there are steps organisations can take to minimise unnecessary fees and ensure compliance.

Thresholds and taxable turnover

The 2024 Spring Budget introduced several changes to the UK tax system. Amongst these was an increase to the UK VAT registration threshold, meaning that from October 2024, the threshold for 12-month taxable turnover rose from £85,000 to £90,000.

This change means that if the taxable turnover of a business remains below £90,000, VAT registration is not required.

Despite worries of VAT being complicated and requiring lots of paperwork, HMRC now processes applications online. Once approved, the process produces a VAT number and an effective date of registration for organisations.

From that point, and under the new Making Tax Digital (MTD) rules, it is down to the business to charge the correct VAT rate on sales and meet strict digital record-keeping requirements. Not only does this involve showing the VAT number and total VAT amount on invoices, but businesses must keep accurate digital records of all sales, input, and output tax, and submit all VAT returns digitally using MTD compliant software.

While we know that if the turnover of a business falls below £88,000 they can choose deregistration, but what happens if earnings are sporadic or unpredictable? For many businesses this is a common scenario, particularly in seasonal industries where dips and spikes in profit are normal.

Compliance: where it gets complicated

Registering early can help businesses ease things and transition, particularly if they expect to cross that threshold in the near future. Education is also key. Businesses should be aware of what counts towards taxable turnover and keep their fingers on the pulse of any regulatory changes coming from HMRC or the Treasury.

Implementing automated tools is another way to track seasonal income and avoid crossing the thresholds unplanned. Emerging technologies can increase accuracy, reduce errors, and help firms navigate regulations. The ever-changing environment of tax compliance and VAT regulations requires appropriate digital reporting in a simple, streamlined, and accessible way.

Otherwise, often the best tip when it comes to tax is that it is all about considering these things as early as possible.

Even if a business is still well below the threshold, if it registers for VAT early on, it will definitely avoid any last-minute scrambles. There are benefits to this too, not only will they get recognition as a VAT registered business, be able to recover VAT on business expenses, but they will also manage to avoid any ‘tax cliffs’.

What is a tax cliff?

When a business crosses the VAT threshold and must start charging the standard 20% rate on most goods and services, crossing the VAT threshold can feel like hitting a tax cliff edge, where a small increase in revenue triggers significant tax obligations.

For many businesses, VAT compliance can be time-consuming and expensive. This, factored in with the wariness of an impending increase to their VAT rates, could lead small businesses to limit their potential growth, just to stay under the threshold set.

For instance, if a food stall at a festival made £80,000 over the summer period, it would be at risk of crossing the VAT threshold. Then, the owner and financial team at the business are presented with a clear opportunity cost decision to make, either to focus on growing the organisation and file for VAT registration or restrict it to stay just below the £90,000 threshold.

This is an interesting dilemma. We have even seen some businesses suggest that a higher threshold could lead to more business growth and lower prices for consumers.

As a result, there are now discussions about increasing the threshold even further. Theoretically, increasing the threshold would lead to cost savings in the admin burdens small businesses face, as handling VAT compliance can take up significant resources.

However, this does not get rid of the tax cliff. Rather, it moves the dilemma to businesses with a higher taxable turnover and will ultimately make the cliff edge steeper when organisations reach it.

Looking out from the cliffs

VAT doesn’t need to be complicated or daunting. With the right tools, businesses can confidently navigate shifting regulations and stay ahead. By automating processes, registering early, or even opting for voluntary registration, they can ease administrative pressure, reduce the risk of non-compliance, and avoid costs.

Looking ahead, technologies are set to play a bigger role in helping organisations operate in today’s ever-changing business environment. Automated tools and AI will likely be key here, especially in helping businesses understand their obligations and streamline VAT reporting.