VAT Made Simple No overall exemption from VAT for charities Problem of irrecoverable VAT Partial exemption often applies Uncertainty over the VAT status of supplies Introduction 2 Activities for VAT ID: 1028549
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1. Noelia SerranoSeptember 2016VAT Made Simple
2. No overall exemption from VAT for charitiesProblem of irrecoverable VATPartial exemption often appliesUncertainty over the VAT status of suppliesIntroduction2
3. Activities for VATBusinessExemptTaxableZero-rateReduced rateStandard rateSupplyNon-business or outside the scope of VATBusinessExemptZero-rateSupply3
4. Three conditions to be met for a business supply to exist:Must involve a supply – something is provided in return for considerationThe supply must be of goods or servicesThe supply must take place in the furtherance of a business activityBusiness supplies4
5. Taxable supplies exceed thresholdNot retrospective (but can be backdated upto 4 years)Can claim back VAT on some purchasesVoluntary registrationMust have some taxable suppliesVAT registration5
6. Activities funded wholly by grants or donationsSubsidised welfare services (85%)Must be no supply in return (barter arrangement)Non-business activities6
7. Exempt activitiesActivities in the public interestOther activitiesHealth & welfareEducationAdmissions to cultural eventsSport and physical educationBurial & cremationCharity fundraising eventsFinancial servicesInsuranceSelling and renting land and buildingsBetting, gaming and lotteries7
8. Sale of donated goods by a charity or its trading subsidiaryExport of goods by a charitySale of certain printed publicationsSale of children’s clothing & footwearSome food and drinkWater and sewerage servicesZero-rated supplies8
9. Gas & electricity for domestic or charity non-business useWelfare advice or informationContraceptivesInstallation of certain energy saving materialsSmoking cessation productsReduced-rated supplies9
10. Standard rated suppliesMost sales of goods and servicesConsultancy feesManagement charge to trading subsidiaryRoyaltiesElectronic publications 10
11. Membership subscriptionsEducation and trainingSponsorshipGrant or contractVAT status?11
12. Can have up to 15 events of similar type in one year in one locationExclude small-scale events (<£1,000)Primary purpose must be raising money and must be promoted as suchVAT exemption covers sales at event, sponsorship, advertising in programmes etcExcludes events where accommodation provided eg: challenge eventsCharity fundraising events12
13. Agent or principalMay need TOMS: Only charge VAT on the marginMargin standard-rated if event in EUMargin zero-rated if event outside EUHMRC guidance Challenge events13
14. Must be VAT registered. Depends on how the purchase is used:Full recovery if used wholly for taxable activitiesNo recovery if used for wholly for non-business activitiesNo recovery if used wholly for exempt activities – unless level of exempt activity is very small (“de-minimis”)Special rules for mixed use purchasesVAT recovery14
15. Eg: overheadsCalled “non-attributable” or “residual”Apportion VAT to types of activity (non-business, exempt, taxable)Recover bit apportioned to taxableAnd recover bit apportioned to exempt if exempt activity is “de-minimis”VAT recovery – mixed use purchases15
16. First apportion non-attributable VAT between business & non-business activities – the BNB methodNext apportion business bit between taxable and exempt activities – the partial exemption methodFrom 1 Jan 2011 can do in one step – a combined method. But no de-minimis allowance for combined methodsVAT recovery - apportionment16
17. Set rules for partial exemption methodMust use income as basis of apportionment – unless agree another method with HMRCNo set rules for BNB methodCombined methods must be agreed with HMRCAlternative approaches:Staff time, staff cost, user headcount, direct expenditure VAT recovery - methods17
18. Include only business income, expenditure and VAT i.e.ExemptTaxable (zero, reduced and standard rated)Do not include non-business income, expenditure and VATVAT return18
19. Available to all charities – even if not VAT registered. Charity tells supplier not to charge VAT. Supplier may require a certificate from charityDisabled access, equipment, vehicles etcCollecting tins, badgesMedicinal products for health or care charitiesAdvertising Some building services and purchasesZero-rating purchases19
20. All charity advertising in third party mediaIncludes recruitment, fundraising, public awareness, campaignsAny form of mediaBut excludes:Direct mailCharity’s own media (eg: website, newsletters) as not third-partyZero-rating - advertising20
21. Available to all charities – even if not VAT registered. Charity tells supplier to charge VAT at reduced rate (5%)Available if:Fuel used for non-business activities, orUse is below certain levels, orIf at least 60% used for non-business activities – whole fuel supply is reduced-rateReduced rating - gas and electricity21
22. Complicated!Normal rule – sale, rent is VAT exemptIf property is “opted to tax” - usually standard ratedNew buildings zero rated if for:Relevant charitable purpose orRelevant residential purposeExtensions generally standard ratedProperty & VAT22
23. VAT rules where make sales abroad or purchases from abroad. Very complicated!Sometimes have to charge yourself VAT on purchases (“reverse charge”)Rules depend on:Whether goods or services For services – type of serviceStatus and location of customerCross border supplies23
24. noelia.serrano@sayervincent.co.ukwww.sayervincent.co.ukVAT made simplehttps://www.gov.uk/topic/running-charity/money-accountsVAT notice 701/1 CharitiesContact details24