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

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

Rates of Tax Standard Rate - 20% Reduced Rate - 5% Majority of goods and services Increased to 20% on 4th Jan 2011 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

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

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

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

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

A Quick Guide Income VAT code Expenditure VAT code Outside the Scope Y6 T3 VATable Supply YS T2 Zero Rate Supply Y3 Exempt Supply Y1 EU Export Y4 (Goods) Y5 (Services) EU Import T4 (Fully recoverable) T5 (non recoverable) PT (part recoverable) Mixed Use Purchase PS

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

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)

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

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

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

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

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

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

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

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

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. We are supplying books. Books are zero rated therefore we are not charging VAT.

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/