Presentation on theme: "MemNet Membership Excellence Conference"— Presentation transcript:
1 MemNet Membership Excellence Conference VAT – common problem areas and an update on recent developments24 February 2012
2 What we are going to cover? Common problem areasLiability of suppliesPartial exemptionstandard methodde-minimis input VATannual adjustmentspecial methodsGrant fundingBusiness and non-business apportionment
3 What we are going to cover? SubscriptionsSingle/multiple suppliesPlace of supply rulesVAT exemptionsRecent developmentsPenalty regimeCost sharing exemptionQuestions and answers
4 Liability of supply Supply Taxable Exempt Outside the scope of VAT Schedule 9 VATA 1994StandardRate20%LowerRate5%ZeroRate0%Schedule 8 VATA 1994
5 Method of determining liability Schedule Zero ratedSchedule ExemptLower Rate SpecificOutside the scope SpecificStandard ratedZero rating takes priority over exemption
6 Exemptions Schedule 9, VATA 1994 provides a list of exempt items: Group 1 LandGroup 2 InsuranceGroup 5 FinanceGroup 7 Health and welfareGroup 9 Trade unions and professional bodies
7 Partial exemption - overview XYZ is partially exempt as some of its turnover is standard rated and some is exempt.Input TaxInputs are recoverable to the extent that they relate to a taxable supply (sale).Need to apportion residual input tax of £25,000 between taxable and exempt supplies to determine recoverability.Taxable Turnover£100,000Exempt Turnover£398,000£15,000£25,000£60,000?
8 Partial exemption – standard method Input TaxThe standard method of apportionment is:Taxable supplies (excluding VAT)Total supplies (excluding VAT)This fraction should be expressed as a % and rounded up to the next whole number.The percentage should then be applied to the residual input VAT.When calculating this fraction you should exclude supplies of land, capital goods or self supplies. You should aim to have a fraction reflecting normal trading activities and anything strange should be excluded.Taxable Turnover£100,000Exempt Turnover£398,000£15,000£60,000£25,000
9 Partial exemption – standard method Input TaxFor example100, x = 21%100, ,000Taxable Turnover£100,000Exempt Turnover£398,000£15,000£60,000£25,000Round up from 20.08%
10 Partial exemption – standard method Input TaxThe inputs that relate to taxable supplies are recoverable.The inputs that relate to exempt supplies are irrecoverable.Taxable Turnover£100,000Exempt Turnover£398,000£15,000£25,000£60,00021%79%= £5,250= £19,750
11 Partial exemption – de-minimis input VAT It is possible to reclaim the input VAT relating to exempt supplies if the amounts involved are below a certain limit.To be de-minimis the total exempt input tax must be less than or equal to:£625 per month on average, and50% of total input tax.Must beboth!
12 Partial exemption – annual adjustment Partial exemption calculations are performed every quarterinput tax is therefore reclaimed on a quarterly basisThese calculations are not finalAt the end of the VAT year the membership organisation must perform an annual calculation using annual supplies and annual input tax figuresthe de-minimis is then applied on an annual basisThe membership organisation should calculate the correct reclaim for the year based on these figuresthis will then be compared to the quarterly reclaims and any difference is known as the annual adjustment
13 Partial exemption – special methods Standard method applies by default.Membership organisation can agree a special method with Customs.Methods can be based on:number of transactionsfloor areastaff numbersinputstimeOnce a special method has been agreed with Customs, the membership organisation must apply the method until both parties agree it is no longer appropriate.Approval or direction of special methods must be in writing.Fairer apportionment of residual VAT
14 Other problem areas Grant funding Business and non-business apportionmentSubscriptionsvoluntary payments or donationssubscriptions which include a donationsubscriptions from overseas membersTransactions with more than one elementsingle/multiple supplies
15 Other problem areas (continued) Property issuesPlace of supply rulesVAT exemptions:referable to the aimsBritish Association of Leisure Parks, Piers & Attractions Ltdright of admissionnot available where a payment other than a membership subscriptionsupplies to non-members
16 Recent developments – Penalty regime Single regime for all taxesCompliance spectrum “innocent to guilty”Penalty system based on “behaviour”
17 Recent developments - Penalty regime 4 types of penalties:“careless” inaccuracy 30%“deliberate but not concealed” inaccuracy 70%“deliberate and concealed” inaccuracy 100%neglect penalty 30%Potential lost revenue
18 Recent developments - Penalty regime More than one inaccuracyOffset over-declarations/under-declarationsMitigation “reduction for disclosure”careless – up to zero penaltydeliberate but not concealed – minimum 20% penaltydeliberate and concealed – minimum 30% penaltyError correction notifications (voluntary disclosures)lower than £10,000between £10,000 and £50,000 but does not exceed 1% of box 6
19 Recent developments - Cost sharing exemption EU law since1977Not adopted in the UK as previously perceived to be “too difficult”, now pressure from the EU to adoptEconomy of scale and “staff costs”Cost Sharing Group (CSG):SPV with no direct controlServices “directly necessary” for exempt/non-business activityMinimum level of exempt/non-business activity2012
20 Questions and answers Bob Jones Indirect tax partner DDI:Luigi LungarellaIndirect tax managerDDI:
21 Questions to consider Is your organisation partially exempt? If so is there an approved partial exemption special method?If so, when was it last updated?Does your organisation receive grant income or is it under contract to national/local government organisations?If so have you considered the VAT implications?Do you review your VAT accounting procedures on a regular basis to ensure full compliance in respect of the penalty regime?