VAT to Basics

1. Departmental Finance Presentation 3 July 2012 FINANCE OFFICE VAT to Basics www.le.ac.uk Roger Bennett University Tax Manager

2. VAT – the Basics • VAT - tax on final consumption of goods/services • Two fundamental rules for VAT to arise • Supply of goods or services is made in return for a consideration • Made by a VAT registered person • UK Rates (taxable) • 20% standard rate • 5% reduced rate • 0% zero rate

3. Rates of Tax • Standard Rate - 20% • Majority of goods and services • Increased to 20% on 4th Jan 2011 • Reduced Rate - 5% • Domestic fuel and power • Children's car seats

4. 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

5. UoL Zero Ratings • Zero rating on some goods and services, as a charity • Advertising - suppliers may ask for a certificate to declare our charitable status: contact the Tax Office if required • Goods and services for medical or veterinary research, training, diagnosis or treatment

6. VAT Exempt • Some goods and services are exempt as it is considered inappropriate to tax them • Health • Education • Financial Services

7. Outside the Scope of VAT • Donations • Given freely without the expectation of receiving anything in return • We buy or sell anything outside the EU • Special, complicated, rules apply • Depends on the place of supply • Foreign invoices always passed by Accounts Payable to the Tax Office • If unsure of VAT code contact the Tax Office

8. 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 we can also recover the VAT

9. A Quick Guide

10. 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 this VAT and pay it to HMRC as part of the quarterly VAT return

11. 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 Y1) • Consultancy (standard rate YS) (taxable) • Donation (outside scope Y6) • Sale of Books (zero rate Y3) (taxable) • Research for a commercial sponsor (standard rate YS) (taxable) • Grant funding received from a not for profit organisation(Y6)

12. ‘Education’ (Exempt) • Tuition fees • Short courses and workshops • Academic conferences • Hire of rooms to external organisations • Medical diagnosis and treatment

13. 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

14. 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

15. What are we using the Purchases for (UK suppliers)? • Purchases used to make a taxable supply, recovery status is fully recoverable • Taxable Purpose: any supply where we charge a positive rate of VAT to our customers, eg • Commercial research contracts (inc KTP projects) • Consultancy contracts • Testing and analytical services • Hire of staff • Catering – bar sales • VAT code is T2

16. Purchases used to make a non-taxable supply, recovery status is non-recoverable • Non-Taxable: any supply which is either exempt or outside the scope of VAT, eg • Teaching and short courses • Educational conferences • Non-commercial research (charity/government funded) • VAT code is T3

17. Purchases used to make a mixed supply, recovery status is partly recoverable • Mixed Supply: purchases to be used for Taxable and Non Taxable supplies, eg • Purchase of equipment that will be used for commercial research (taxable) and teaching (exempt) • General overheads, eg purchase of office equipment • VAT code is PS

18. Medical Zero Rating • The following equipment (and related parts/ accessories) qualify for zero rating if to be used by an eligible body mainly for medical or veterinary research, training, diagnosis or treatment • medical - scientific • computer (and certain software) - video • sterilising - laboratory • refrigeration • Full details on HMRC website (http://www.hmrc.gov.uk/charities/vat/charity-funded.htm) or contact the Tax Office

19. Purchases from Non-UK Suppliers • Other VAT codes exist for purchases from overseas suppliers (see handout) • 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 in SAP by using correct VAT code • 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

20. Question Time! • 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? • We have supplied consultancy and are charging the standard rate (20%) VAT. • What VAT code do we use to raise the sales invoice? • 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?

21. Need Assistance or Advice? • Taxation Section – Room 172, FJB • Roger Bennett (University Tax Manager) ext 2475 rb209@le.ac.uk • Raj Bhola (Assistant Tax Accountant) ext 2379 rh109@le.ac.uk • Jos Puri(Direct Tax Accountant) ext 5182 jp238@le.ac.uk • University Tax Office Website • http://www.le.ac.uk/finance/infoforms/vat/taxhome.html • HMRC website helpful for detailed VAT rules - use search or look under ‘charities’ or ‘education’ section • http://www.hmrc.gov.uk/