VAT to Basics

1. VAT to Basics Departmental Finance Presentation 30 July 2019 Roger Bennett University Tax Manager

2. VAT – the Basics VAT – tax on final consumption of goods/services Supply of goods or services made in return for a consideration Made by a VAT registered person

3. Rates of Tax • Standard Rate - 20% • Majority of goods and services • Reduced Rate - 5% • Domestic fuel and power • Children's car seats • Zero Rate - select group of goods and services • Some food (Groceries) • Books and newspapers • Children’s clothing • Public transport • Some equipment for the disabled • Certain purchases made by a charity

4. Charity VAT Zero Ratings Zero rating on some goods and services, as a charity Advertising – suppliers may ask for a certificate to declare charitable status Goods and services for medical or veterinary research, training, diagnosis or treatment

5. VAT Exempt considered inappropriate to tax Education Health Financial Services

6. Outside the Scope of VAT Donations Given freely without the expectation of receiving anything in return • If we buy or sell anything outside the EU • Special rules apply • Depends on the place of supply. Basic rule – buy/sell from outside the EU – outside the scope – taxed at point of entry into country where the customer belongs. • If unsure of VAT code contact the Tax Office

7. Using VAT Codes • All purchase and sales invoices in the University require a VAT code • Sales invoices • VAT code depends on the nature of what you are selling • Purchase invoices • VAT code depends on the rate we have been charged and whether we can recover the VAT

8. Output Tax (Income) VAT we charge on sales made to our customers BUT We do not charge VAT on all sales as not all sales are taxable We collect and pay any VAT due to HMRC as part of the quarterly VAT return

9. Types of University Income • VAT code is determined by the nature of what we are charging for • Raising a sales invoice/received cash for…… • Education (exempt X) • Consultancy (standard rate S) (taxable) • Donation (outside scope OS) • Sale of Books (zero rate Z) (taxable) • Research for a commercial sponsor (standard rate S) (taxable) • Grant funding received from a not for profit organisation(OS)

10. ‘Education’ (Exempt)

11. Input Tax (Expenditure) • VAT charged to us on purchase invoices - we pay this to our suppliers • The supplier invoice should clearly identify if VAT has been charged – clues to look for on the invoice: • Supplier VAT number • Rate of VAT • Amount of VAT being charged, i.e. net, VAT and gross

12. Purchase Invoices Recovery Status of VAT • Input VAT (VAT on purchase invoices) can be fully recoverable, partly recoverable or non-recoverable • Recovery status depends on what the purchase has been used for

16. Purchases from Non-UK Suppliers • Other VAT codes exist for purchases from overseas suppliers • Where VAT has not been charged on invoice by overseas supplier, may need to apply reverse charge VAT (we apply VAT on the supply ourselves) • Automatic by using correct VAT code, RS, RG • The University must account for VAT at the rate the supply would attract if supplied in the UK, eg consultancy, financial advice, supply of staff, electronic services

17. Question Time! • We are supplying books. Books are zero rated therefore we are not charging VAT • What VAT code do we use to raise the sales invoice? • We have supplied consultancy and are charging the standard rate (20%) VAT • What VAT code do we use to raise the sales invoice? • We do not charge VAT on tuition fees, educational conferences, and hire of rooms • What VAT code do we use to raise the sales invoice?

18. Corporation Tax The University may be a Charity, but Corporation Tax is still relevant Key Issues: Strong understanding of how to identify taxable income Good analysis of income and expenditure

19. Charitable Purpose vs Non-Charitable Purpose

20. Identifying Taxable Income

21. What is Taxable? Mainly teaching, charitable research, services to students Primary Purpose is in the furtherance of the University’s charitable objectives, ancillary or carried out mainly by the beneficiaries (students) Analyse income between Primary purpose and Non-primary purpose Conferences and event hire Non-charitable research Any other trading Sports facilities Non-student lettings Consultancy Closed courses “Overage” deals Other services to the public

22. What is Taxable? Calculate profit/loss on non-primary purpose activity Establish direct costs attributable to NPP activity Allocate overheads – using appropriate overhead recovery rate Adjust for non-allowable expenditure Depreciation Claim Tax Reliefs Capital Allowances

23. Research ?Classification • Commercial/other research where dissemination of results/IP ownership is less clear • UK/EU Government/ Research (Research Councils) • Non-primary purpose Primary purpose • Research for commercial organisations, where they retain results/IP • Research for other charities

24. Other Income

25. Other Income

26. Consultancy

27. Approved Charitable Investments (ACIs) 12 Types Eg: Listed Shares Bank Deposits Land Investments Any Loan/Investment made for the benefit of the charity and not for the avoidance of tax (including Equity Investment/Loan in a Subsidiary)

28. Need Assistance or Advice • Taxation Section – Northcote House • vat@exeter.ac.uk • Roger Bennett (University Tax Manager) ext 5438 r.w.bennett@exeter.ac.uk • Liz Shillingford ext 3098 @exeter.ac.uk • Anna Gralia-Szucs ext 3132 @exeter.ac.uk • University Tax Website • http://www.exeter.ac.uk/finance/operations/vat/ • HMRC website helpful for detailed VAT rules - use search or look under ‘charities’ or ‘education’ section • http://www.hmrc.gov.uk/ • Taxation Section – Northcote House • vat@exeter.ac.uk • Roger Bennett (University Tax Manager) ext 5438 r.w.bennett@exeter.ac.uk • Other Finance Services Contacts ext 3076, 5009 or 5058 • University Tax Website • http://www.exeter.ac.uk/finance/operations/vat/ • HMRC website helpful for detailed VAT rules - use search or look under ‘charities’ or ‘education’ section • http://www.hmrc.gov.uk/