VAT made simple

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VAT made simple

• Gillian McKay and Farrah Kitabi

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Introduction

• No overall exemption for charities
• Problem of irrecoverable VAT
• Partial exemption often applies
• Uncertainty over the status of supplies

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Activities for VAT
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Business supplies

• Three conditions to be met to determine a
  business supply
• Must involve a supply for consideration
• The supply must be of goods or services
• The supply must take place in the furtherance of
  a business activity

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Registration

• Taxable supplies exceed threshold
• Not retrospective
• Can claim back input VAT
• Voluntary registration
• Must have some taxable supplies

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Non-Business Activities

• Voluntary work funded by donations
• Voluntary work funded by grants
• Subsidised welfare services (85)
• Must be no service in return

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Exempt Supplies

• welfare
• residential care
• nurseries
• training activities
• medical care
• some education
• some cultural activities
• fundraising events
• renting residential accommodation
• lotteries and bingo

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Zero-rated Supplies

• Sale of donated goods
• Export of goods
• Sale of publications
• Sale of childrens clothing, some food etc. as
  normal

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Standard rated supplies

• Most sales of goods and services
• Consultancy fees
• Management charge to trading subsidiary
• Royalties

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VAT status?

• Membership subscriptions
• Education and training
• Sponsorship
• Grant or contract

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Fundraising Events

• Can have up to 15 events of similar type in one
  year in one location
• Exclude small-scale events (lt1,000)
• Cannot compete with commercial providers
• Include participatory events, not holidays

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Challenge events

• Agent or principal
• May need TOMS
• New HMRC guidance from 31 July 2008

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VAT Recovery

• Must be VAT registered
• No recovery for non-business purchases
• 100 recovery of VAT on taxable activity
• Possible partial exemption
• recovery of VAT on shared expenses

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VAT recovery

• Apportion input VAT in relation to income
• outside scope
• exempt
• standard-rated and zero-rated
• non-attributable
• Recovery of part of non-attributable

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Partial exemption

• Will apply if de minimis limits exceeded
• Second stage in calculations - exclude
  non-business first
• Annual adjustment will apply

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Non-attributable or residual VAT

• Apportion between VAT categories
• Fair basis - standard method is income
• propose alternative methods
• staff costs
• numbers of staff and volunteers
• floorspace
• Agree method in advance

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VAT return

• Include only business income, expenditure and VAT
  i.e.
• Exempt
• Vatable (zero, reduced and standard rated)
• Do not include non-business income, expenditure
  and VAT

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Zero-Rated Purchases

• Available to all charities even if not VAT
  registered
• Aids for disabled
• Disabled access
• Ambulances and vehicles
• Collecting tins, badges

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Advertising

• All advertising
• Includes recruitment advertising
• Any media
• Excludes direct mail
• Excludes charitys own website

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Property

• VAT on property is complex
• Normal rule exempt
• Option to tax is usually standard rated
• New buildings zero rated if for
• Relevant charitable purpose or
• Relevant residential purpose
• Extensions generally standard rated

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Contact details

• helen_at_sayervincent.co.uk
• joanna_at_sayervincent.co.uk
• www.sayervincent.co.uk
• VAT made simple
• www.hmrc.gov.uk/charities
• VAT notice 701/1 Charities