3. Agenda
• Basic UK VAT Rules
• VAT Difference between Councils & Charities
• VAT & Funding applications
• Registering for VAT
• VAT liabilities of supplies
• Recovering VAT
• Managing Property Assets & the VAT implications
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4. Basic VAT Principles
VAT is chargeable on a
taxable supply of goods or services;
made by a taxable person;
made in the UK;
in the course of business.
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5. Scope of VAT
• A tax on transactions
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6. Basic UK VAT Rules:
Basic VAT rules:
Output Tax is the VAT charged on taxable supplies made in the UK and is paid over
to HMRC.
Input Tax is the VAT incurred on costs borne by a business and can be offset against
the Output Tax due on the VAT return subject to certain rules on recovery
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7. Basic Rules: VAT Liabilities
VAT applies to supplies made by way of business:
• Taxable: Standard / Reduced rate / Zero
• Exempt
………………………………………………………………………………………………………….
• Outside the scope/non business
• Some activities undertaken by a charity are non business supplies:
• No VAT accountable on a non business income eg: donations/grants
• VAT on Costs relating to non business activities is blocked from recovery
• Supplies which happen Outside the UK will be outside the scope of UK VAT.
• Statutory activities undertaken by a local authority or activities by other public bodies
such as an NHS Trust or an FE College can be regarded as non business and outside the
scope of VAT. Special VAT recovery rules can apply to these bodies but the rules will
vary. Some will have no special recovery rules for eg an FE College.
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9. Councils
• Special VAT Status – Section 33
• Statutory Bodies that make Non
Business Supplies: social
care/education/refuse collection
• Allowed to recover VAT incurred in
making non business supplies
• Will have business income with mixed
VAT liabilities
• De minimis Partial Exemption levels
set higher than for charities
• Assessable back over 3 years
Charities
• No Special VAT status – treated as a normal
business
• Recent change for Hospice sector on palliative care
provision – can assess section 33 relief in part*
• Will make non business supplies – free supplies of
goods and services (funded either by grant support
or donations/investments)
• No right to recover VAT on costs relating to non
business activities*
• Same De minimis Partial Exemption rules as a
normal business
• Limited reliefs from having to charge VAT on the
goods and services they sell
• Limited reliefs from having to pay VAT on the goods
and services a charity buys in.
• Assessable back over 4 years
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11. Funding Applications
• Are you asking for grant support or pitching to win a contract to supply goods or services to the funder?
• Leisure/Cultural assets transferred from the Council – will you own them outright or run them on behalf of
the council and charge the council for your management services?
• Confusing language in documents = “bid should include VAT” what could that mean?
To consider these questions you need to identify whether what you will be doing will generate taxable business
activities & therefore a VAT registration.
Then you need to establish:
1. The mix of your taxable income in comparison to non business or VAT Exempt income and,
2. The likely throughput of VAT on your costs to establish how much of that could be either,
I. Recoverable from HMRC,
II. Benefit from a lower or zero rate of VAT due to the nature of those costs and what activities they will relate to in
you organisation,
III. Remain as a cost and not recoverable so needs to be built into and grant funding application.
Grants to fund major building refurbishments or property acquisitions need particular attention due to the 10
year Capital Goods Scheme Requirements.
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13. Making Supplies in the UK – What
triggers a VAT registration
Place of supply of goods in country
Place of supply of services in country
Acquisitions of goods from the EU
Importing services from outside the UK
Distance Selling – goods sold on line
Digital Services – delivered on line, not just web design type
services
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14. UK VAT registration thresholds:
Taxable supplies over £82,000 from 1 April 2015
Compulsory & Voluntary VAT registration
Distance selling threshold: £70,000 (from 1 Jan of the year in
question)
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15. What entity is registered:
• Sole Proprietor
• Partnership
• Limited Company
• Unincorporated Association
• Single Entity or VAT Group Registration
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17. Zero Rated Areas
• Transport
• Food
• Books, magazines and newspapers
• Some Reliefs for supplies to or by Charities
• Bank notes
• Caravans and houseboats
• Clothing and Footwear
• Construction of buildings
• Drugs, medicines, aids for the handicapped
• Sewerage Services and Water
• Talking Books for the Blind & Handicapped and
wireless sets
• Protected Buildings
• International Services
• Gold
• Imports, Exports
• European Research Infrastructure Consortia
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18. Reduced Rate Areas
• Fuel and Power for domestic or charity use
• Certain goods and services in connection with energy efficiency
• Residential Conversions
• Grant funded installation of heating equipment or security goods or connection of gas
supply
• Women’s Sanitary products
• Children’s Car Seats
• Residential Renovations and alterations
• Contraceptive Products
• Welfare Advice or Information
• Installation of Mobility Aids for the Elderly
• Smoking Cessation Products
• Caravans
• Cable-suspended Passenger Transport Systems
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19. Exempt Areas
• Education
• Health & Welfare
• Land
• Insurance
• Postal Services
• Betting, Gaming, Dutiable Machine Games and Lotteries
• Finance
• Burial & Cremation
• Subscriptions to trade Unions, professional and other public interest bodies
• Sport, Sports competitions and physical education
• Works of Art
• Fund Raising events by Charities and other qualifying bodies
• Cultural Services
• Supplies of goods where input tax cannot be recovered
• Investment Gold
• Supplies of Services by Groups involving Cost Sharing
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20. Other Non VAT areas
• Some examples where VAT is specifically not chargeable
salaries and wages
tips and gratuities
penalties and fines
compensation
rates and council tax
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21. Standard Rate Areas
If it is a supply by way of business
and
not covered in any of the other schedules
then it will attract
the
standard rate of VAT
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23. Recovery of Input Tax
• VAT is generally recoverable on expenses in relation to a
taxable business activity.
But not recoverable on:
Business entertainment;
Motor car purchase or lease *
When related to exempt income (subject to
de minimis rule)
When related to non business activities.
* Partially recoverable on car leasing
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24. Tax Evidence
No
• Request for payment
• Proforma Invoices
• Statement
• Purchase Order
Yes
• Self Billing Invoices
• Authenticated Receipts
• Invoices
• Less Detailed Invoices
• Credit Notes
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25. Analysing Input Tax use:
Shop co VAT Ltd
VAT Analysis of VAT on Purchases
January
Invoice Description Net VAT
Wholly
used for
Taxable
Wholly
used for
Exempt
Wholly used
for non
business Mixed use
1 Till repairs 50 10 10
2 Audit fee 1000 200 200
3
Directors
Membership to Golf
Club 500 100 100
4
Repairs to flat above
shop rented out 750 150 150
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27. Managing Property
• The “exploitation” of property is regarded as a business activity:
– Granting a lease in commercial/residential properties
– Selling property
– Surrendering an interest in property
– Renting out a room/flat/house
– Renting out offices space or desk space and use of facilities
– Holiday/Hotel/hostel accommodation
– Access to sporting facilities
– Admission to events
– Advertising hoardings
– Grazing rights/Fishing rights/mineral right/tree felling rights
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28. Property Income VAT liabilities:
• Zero/ Exempt/ Standard rated if by way of business:
– Influenced by the type of the property
– The nature of the transaction (FH/Lease)
– The age of the property
– Whether the vendor has “opted to tax” their interest in the property
– What the property will be used for
• Possible non business treatment if interests disposed of for a
peppercorn.
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29. Capital Goods Scheme:
• Triggered if you spend £250k plus VAT on any property related costs such
as buying a FH/LH property, building from new/refurbishing/extending etc
• Brings a requirement to monitor the use of that asset for a period of 10
intervals (10 years effectively)
• The VAT recovery treatment of the costs incurred at the start can
therefore be adjusted up or down as time passes as the taxable use of the
property varies over that period.
• Some grant funder might expected additional improvements in recovery
in later years on projects they’ve supported to be refunded to them.
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32. We make every effort to ensure that the information contained in these slides is
accurate as at the date of the event in which they formed the basis of the
presentation.
This presentation is for discussion purposes only and does not contain general or
specific advice.
Please seek appropriate advice before making any financial decisions.
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