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Our recent survey of 300 media industry business leaders revealed a series of key findings on how these businesses are faring and plan to stay ahead of the competition in the next 12 months. We highlight some of the headlines from this survey and consider the VAT issues that might arise as a result.

Exit strategies could create VAT surprises

67% of our respondents said that they were planning a funding round in the next 11 months-2 years, while 53% are considering an exit within 1-2 years. Businesses are often caught in complex corporate restructuring, with significant professional fees incurred during the fund-raising/exit process. Commercial considerations are typically prioritised, while VAT is often overlooked.

VAT recovery on deal fees has been on HMRC’s radar for quite some time. In particular, HMRC often disallow VAT recovery on professional fees incurred. Thorough consideration of the associated VAT implications as early as possible in the exit process could facilitate VAT-efficient structuring to permit recovery of VAT.

International ambition for UK media businesses

Overseas expansion was revealed to be the second most important area of investment for businesses in the media sector, reinforcing respondents’ desire for growth and the plethora of opportunities that such expansion brings.

With HMRC’s focus on tax collection over the past year, we have seen an increase in enquiries about the application of the place of supply rules to services provided by groups of companies that might have international networks. This is a complex area as there might be a degree of subjective judgment in these matters.

Compliance with the local indirect tax regime should also feature in your process. At an EU level, a series of measures will be adopted to bring the EU rules into the Digital Age. The proposals will change the scope of the VAT rules for the platform economy, facilitate e-invoicing and affect the compliance obligations for businesses carrying out cross-border transactions. Businesses will have to critically review their systems and, more generally, their internal VAT governance.

The revolution of AI

59% of the respondents to our survey said that they are either actively using or experimenting with generative AI. While AI improves service delivery and efficiency, its increasing use raises complex VAT questions, especially when services are provided cross-border.

On cross-border transactions, particularly when AI support replaces human tasks, questions arise about where VAT should be applied. Typically, businesses treat overseas transactions as outside the scope of UK VAT, but exceptions exist for electronically supplied services, which are subject to VAT where they are used by the customer. This creates potential VAT risks, as businesses now need to measure and value use, consider how to invoice, and justify their approach to HMRC.

As AI’s role grows, these VAT challenges will become more prominent, requiring businesses to reassess how they manage VAT compliance in the new AI-driven era.

VAT planning: key to sustainable growth in the media sector

While the media industry has faced headwinds in the recent past, our survey suggests that there is renewed optimism about the opportunities presented in the future. However, as businesses navigate funding rounds, exits, international expansion and the integration of AI, it is crucial to stay ahead of VAT compliance challenges. Proactive planning and thorough understanding of VAT implications can help media businesses optimise their tax positions and avoid unexpected liabilities. By addressing these VAT considerations early, businesses can better position themselves for sustainable growth and success in an evolving digital landscape.