VAT to Basics

Departmental Finance Presentation
3 July 2012
VAT to Basics
Roger Bennett
University Tax Manager
VAT – the Basics
• VAT - tax on
• 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%
– 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
VATable Supply
Zero Rate Supply
Exempt Supply
Y4 (Goods)
Y5 (Services)
EU Export
EU Import
Mixed Use Purchase
T4 (Fully recoverable)
T5 (non recoverable)
PT (part recoverable)
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)
• Grant
funding received from a not for profit
‘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 nonrecoverable
– 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)
– sterilising
– refrigeration
• Full
- video
- laboratory
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
– 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.
– 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?
Need Assistance or Advice?
• Taxation Section – Room 172, FJB
– Roger Bennett (University Tax Manager)
ext 2475
[email protected]
– Raj Bhola (Assistant Tax Accountant) ext 2379 [email protected]
– Jos Puri (Direct Tax Accountant) ext 5182 [email protected]
• University Tax Office Website
• HMRC website helpful for detailed VAT rules - use search
or look under ‘charities’ or ‘education’ section

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