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HMRC internal manual

VAT Valuation Manual

HM Revenue & Customs
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Specific applications: Record companies: contractual supplies to artistes

Many record production companies, when contracting the right to reproduce recordings, agree with the artistes or their business representatives to supply “free of charge” a specified quantity of the recordings (in the past as records, videos or cassettes, but more usually today as compact discs, dvds, or in digital format.).

Such agreements usually relieve the record company of the obligation to pay royalties on the free recordings they supply. The supply of recordings under contract is seen to be for a non-monetary consideration as the recipient is providing in return the benefit of the use of the recording.

Therefore, when a company contracts to supply the artiste with a number of recordings as part of the contract, it must treat these as supplies made for a non-monetary consideration and account for VAT in accordance with the provisions of section 19(3) of the VATA 1994.

The value will be determined by establishing the amount of monetary consideration that would otherwise have been given for the recordings, as explained in Section 05000 of this guidance.

The British Phonographic Industry Ltd (BPI) were notified of the above and accepted it. All BPI members were advised of it by the association.

The arrangement does not apply to free copies of promotional recordings, which are regarded as non-contractual handouts and are supplied for no consideration. An agreement exists between HMRC and the BPI covering promotional supplies. You can find out about this in the next page.