The ins & outs of VAT on CD pressing and how it affects you, the broke musician.
From the ThingsYou'reMissing archives.
VAT and CD Pressing This article originally appeared on the ThingsYou'reMissing website back in 2003.
Before we start – A Disclaimer: VAT can be an incredibly complex system. This article is intended as a guide and may not be accurate or up to date. You should seek professional advice from an accountant or the Revenue Commissioners before making any decision on VAT registration.
Most price quotes for CD pressing, no matter where you get them done (in Ireland, Austria, or the Czech republic for example) do not include VAT.
You will, however, have to pay VAT – if you get pressing done in the EU the VAT will be added and charged to you by the pressing company at either the rate that applies in their country (21% for Ireland, 17.5% I think for the UK) or the rate that applies in Ireland (depending on their volume of sales). If you get pressing done outside the EU you will be charged VAT at the Irish rate at point of entry (in the airport, or by the shipping company).
For a while it was possible to avoid this by saying that the records were for promotional purposes, but this no longers works. Getting the records shipped to the UK and then arranging for them to be brought to Ireland doesn't work anymore either.
The only way to avoid paying VAT on pressing is to register for VAT with the government. This means that you will have to submit VAT returns every two months and accounts at year's end – you may need to hire an accountant to do this for you. Lots of hassle, but more importantly you will also have to charge VAT on every CD you sell and forward this money to the taxman. So if the purpose of you registering for VAT is to get CDs pressed cheaply then you are fooling yourself – you get the CDs cheaper, but 21% of the purchase price goes to the govt, so you actually end up with less money in the end. Here's an example (the figures are not real, but will give you an idea what I'm talking about):
Say you want to make 1000 EPs and sell them for a fiver each. You get a quote of 2000 for pressing, printing etc. If you're not registered for VAT, you'll have to pay VAT on the pressing, so your outgoings will be 2000 + 21% = 2420. So if you sell all your EPs you will make 5000 – 2420 = 2580. If you are registered for VAT you'll only pay 2000 for your pressing, but you'll have to charge VAT to your customer.
Therefore if you still want to charge a fiver per item, the government will get 0.87 and you will get 4.13 (0.87 is 21% of 4.13). So the total amount of money you'll take in is 4.13 * 1000 = 4130, so you profit will be 4130 – 2000 = 2130. Hey presto, you end up with less money if you are registered for VAT, and you've to do a lot more work.
Of course, in your VAT returns you could let on to have sold none of the CDs, but that is illegal and would be pretty suspicious to any tax-person who looked at your accounts.
One other little thing – if nearly all of your record sales are through shops rather than at gigs, then you probably should register for VAT. This is because the shops will all be registered, and will have to pay VAT, so even if you yourself are not registered the government will still take their cut … therefore you might think about registering in order to minimise your costs.