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General Information

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General Information

Background

VAT (Value Added Tax) is a tax on consumer expenditure. It was introduced in the UK with effect from1st April 1973 as a consequence of the UK's membership of the European Community. The basic legislative framework is the EC6th Directive and the VAT Act 1994. VAT is administered in the UK by HMRC.

Scope

A transaction is with the scope of UK VAT if all the following conditions are met:

  • It is a supply of goods or service;
  • It takes place in the UK;
  • It is made by a taxable person (i.e. a supplier who is or ought to be registered for VAT); and
  • It is made in the course or furtherance of any business carried out by that person.

VAT Registration

The VAT registration threshold is £70,000. Buckinghamshire County Council has one VAT registration. This covers all establishments (including schools with cheque book facilities) and all other funds maintained by the County Council through its accounts.

Excluded from the registration are private funds (for example School Funds) and other funds that are not maintained through the County Council accounts, If these private funds exceed the limit for registration contact the Council's VAT Officer who will be able to advise you on registration.
The County Council's VAT Registration Number is GB 195 4663 25.

Input Tax and Output Tax

The VAT charged by a business on its own supplies (i.e. income) is known as Output Tax and this has to be paid over to HMRC. Conversely, Input Tax is the tax incurred by the business on its purchases (i.e. expenditure) and it is this amount that can normally be reclaimed from HMRC. 

Rates of VAT

Standard Rated Supplies (20%)
Put simply, all supplies made by a registered business are subject to VAT at the standard rate unless specifically excluded by law. The following types of income are normally subject to VAT at the standard rate of 20%

  • Car parking (off street)
  • Clothing
  • Garage rentals
  • Meals for staff and visitors
  • Sales form vending machines
  • Sale of computers (new and second hand)
  • Furniture
  • Materials
  • Scrap metal
  • Services to other authorities
  • Sporting facilities for individuals
  • Telephone calls

Lower Rated (or Reduced Rated) (5%)
The categories of goods and services to which the reduced rate applies are as follows:

  • Domestic fuel or power
  • Installation of energy saving materials
  • Grant funded installation of heating equipment or security goods or connection of gas supply
  • Renovation and alteration of dwellings
  • Children's car seats
  • Women's Sanitary products
  • Contraceptives

Zero Rated Supplies (0%)
Supplies subject to VAT at the Zero rate include:

  • Export and import of goods
  • Food, excluding restaurant meals and other catering supplies
  • Sewerage and water services
  • Books, newspapers and other publications
  • Talking books for the blind and handicapped and wireless sets for the blind
  • Constructions or demolition of dwellings
  • Certain international services
  • Public transport
  • Caravans and houseboats
  • Gold and precious metals
  • Bank notes
  • Drugs, medicines and aids for the handicapped
  • Charities
  • Clothing and footwear for children
  • Protective clothing

Exempt Supplies

Certain supplies of goods and services are exempt form VAT. This means that no tax is charged on such supplies to customers, and in principle no reclaim is allowed for tax on goods and services supplied to the business that are attributable to those exempt supplies. The VAT incurred in making exempt supplies can be reclaimed if it is insignificant compared to the total VAT reclaimed.
If you are aware of any new activity which may result in exempt income please contact the Council's VAT Officer.
The supplies include:

  • Sale or letting of land (unless an option to tax has been exercised).
  • Insurance services
  • Postal services supplied by the Post Office
  • Betting, gaming and lotteries
  • Most financial services
  • Education as provided at a school or university
  • Health and medical services
  • Burial and cremation
  • Trade unions and professional bodies subscriptions
  • Individual use of certain sports facilities (except those supplied by a Local Authority)
  • Works of art
  • Fund raising events by charities
  • Admissions to cultural sights eg Museums, zoos, exhibitions
  • Supplies of goods where input tax cannot be recovered
  • Investment Gold

Outside the Scope of VAT (Non-Business Supplies)

For Local Authorities a "business activity" is one in which a supply of goods or services is made which is comparable with, or is in competition with, similar supplies made by the private sector in the course of business. But if a Local Authority has a statutory monopoly over particular supplies or has a statutory duty to make the supply, those supplies are normally non-business activities and outside the scope of VAT. Examples of non-business activities include the supply of primary and secondary education, the loan of library books, and the provision of meals on wheels. 
Normally input tax attributable to non-business activities is not recoverable. However, Local Authorities are a special case and are able to claim refunds of VAT on their non-business activities under the special provisions of section 33 of the VAT 1994.
Internal transactions, for example a recharge from a school to youth and Community, would be outside the scope of VAT as the Council is covered by one VAT registration and cannot charge itself.
VAT is only liable where there is 'consideration' for the supply. However, this consideration does not have to be monetary, it could be a barter arrangement. If there is no consideration, the transaction will be outside the scope of VAT.
The Difference Between Zero-Rated, Exempt and Non-Business Supplies
For supplies falling into each of these non-positive categories, VAT is not charged and they appear, superficially at least, to be the same. However they vary in the treatment of the input tax incurred by the supplier which may or may not be recoverable.

  • Where supplies are zero-rated, the supplier can recover VAT on the purchases made in relation to the supply.
  • For exempt supplies, no VAT is added to the cost price when the goods or services are supplied to the consumer and, normally, the VAT incurred by the business in providing the exempt goods or services cannot be recovered. It can only be recovered if it constitutes a small proportion (less the 5%) of the total amount of VAT recoverable. In the case of Bucks County Council the amount of VAT recovered on exempt supplies does currently satisfy this condition. Therefore VAT incurred in making exempt outputs can be recovered. This is subject to review each year.
  • For non-business supplies (i.e. those outside the scope of VAT) VAT is not normally charged and the associated input tax cannot be recovered. However, certain bodies known as section 33 bodies which include Local Authorities can reclaim Input Tax incurred in making such supplies.

VAT Return

The VAT Officer completes a monthly VAT return to HMRC. The County Council incurs more input tax than output tax. Each month we recover approximately £2.5m from HMRC.

In completing the return, the VAT Officer is reliant upon information held in SAP. This information must be accurate to enable the Council to fully recover the money to which it is entitled.

Where VAT adjustments, interest and/or penalties arise because guidance issued by the Head of Finance or the Council's VAT Officer has not be followed, any costs incurred will be charged to the relevant cost centre.

If you require and advice, consult the Council's VAT Officer.

Time of Supply

The time when goods or services are treated as supplied (referred to as the Basic Tax Point) is important for the following reasons.

  • It determines the period for which the supplier must account for the tax, and so the date by which it must be paid over to HMRC;
  • It determines the period in which a VAT registered customer can reclaim the tax; 
  • When there is a change in rate of VAT, the tax point of a particular supply will determine the VAT rate to be applied.

The Basic Tax Point as regards goods is the date they are sent, collected or made available to the customer.
In the case of a supply of services the Basic Tax Point is the date the service is performed (normally when all work except invoicing is completed.) Where there is a continuous supply of services, there is no Basic Tax Point. A Tax Point is created by the earlier of the issue of a tax invoice or the receipt of a payment in respect of the supply.
The Basic Tax Point will be overridden by establishing as Actual tax Point by either of the following actions:
A tax invoice is issued or payment is received before the Basic Tax Point: the earlier date is taken as the Actual Tax Point; or
A tax invoice is issued up to two months after the Basic Tax Point, in which case the invoice date becomes the Actual Tax Point.
It is worth stressing that whenever a tax point is created the VAT has to be accounted for in that month's VAT return. Therefore, incorrect tax points and delays in issuing a tax invoice and/or entering the VAT in the Council's accounts can result in interest charges and penalties being charged by HMRC.

Value of Supply

The value of a supply is the value on which VAT is due. the amount of VAT is then the value multiplied by the VAT rate. If the consideration is not wholly in money, the value of the supply is the monetary equivalent of the consideration.
A free supply of services would escape the VAT net. However, the supply must be genuinely free; there must be nothing done by the recipient in return, even to the extent of refraining from taking any action which would otherwise have been taken. 

VAT Visits and Retention of Records

HMRC officers visit businesses on a regular basis to examine the records and check these against the VAT returns. Businesses are required to retain their accounting records with supporting tax.

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