28 September 2022
The Department for Culture, Media and Sport (DCMS) recently released a statement to promote the VAT recovery scheme it operates for museums and galleries that open to the public free of charge.
First introduced in 2001, museums and galleries can apply to be approved under the scheme, which allows them to obtain a refund of VAT on many of the costs they incur on their collections that they allow the public to view without paying an admission fee. There are currently more than 100 UK venues that have been approved to use the scheme, ranging from national institutions like the British Museum and the National Gallery, to collections held by universities and local museums, plus smaller galleries operated by charities across the country. Around £100m a year is refunded through the scheme.
DCMS now says that it is reopening the scheme to new applicants for the first time since 2019 and urges potentially eligible venues to apply, as part of plans to boost visitor numbers and give more people access to arts and culture.
Approval for the scheme is granted at ministerial level and applicants must be able to show that they hold their collections in a purpose-built venue, are open to the general public for at least 30 hours per week, offer free entry (without prior appointment) and display details of free entry and opening hours on their website. Applications are submitted to the DCMS, or to the devolved administrations in Scotland, Northern Ireland and Wales. Museums and galleries must support their applications with details of their Arts Council England accredited status (or equivalent), along with past and projected future visitor figures and information on their education programmes and community engagement work.
Should they be accepted into the scheme, museums and galleries could potentially receive a VAT refund on many of their costs, such as acquiring and maintaining their collection and the venue it is housed in (including common areas in the venue such as freely accessible children’s play facilities) and providing free information and lectures related to the collection. This VAT may not otherwise be recoverable as granting admission for no charge is normally deemed to be a ‘non business activity’ for VAT purposes.
We understand there are still many organisations that could potentially qualify, for example many charities, religious groups, schools and universities already operate a small free-to-access museum on their premises. These organisations should consider applying for the scheme, which could allow them to recover input VAT that was previously lost due to their non-business status.
Museums and galleries that currently charge for entry should also consider whether it would be beneficial to convert to a free entry model and apply to join the scheme instead. Giving free admission to their collections may boost visitor numbers and increase income from their souvenir shops and cafes. However, those applicants, who may already enjoy some VAT recovery, should carry out a careful cost benefit exercise to make sure a free entry model is viable. This should include a review of agreements covering any funding paid to the museum, some of which already take into account irrecoverable VAT.
While people are keen to enjoy public space and communal activities now Covid restrictions are gone, costs and inflation are expected to affect their spending capacity over the coming winter, so now might be a good time for galleries and museums to weigh up different operating models.