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Specific VAT Guidance

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Specific VAT Guidance

Adult Education Courses

Any charge for an adult education course, whether subsidised or not, is an exempt supply of education.

Agents and VAT

Information on this topic will be provided shortly.

Card Handling charges

Any surcharge levied for payment by credit or debit card follows the same VAT liability as the underlying supply.

Car Leasing to Employees

Where the County Council provides employees with the use of leased cars for official business, only 50% of the VAT charged by the car lease companies can be recovered if the car is used for any private mileage (this includes any home to work mileage). If the car is leased only for official business use, all the VAT can be recovered.
If, however, the cars are purchased instead of leased then no VAT involved can be recovered if any private mileage is to be undertaken. Full VAT recovery can be made for car use only for official County Council business.
Employee's contributions towards the cost of the provision of the cars (for example to cover the private use element) are not subject to VAT. Additional charges for insurance and administration are subject to VAT at the standard rate.

Catering

Supplies made by the County Council
Sales to Students and Pupils
VAT must be accounted for on ALL sales of food and drink where they are sold for profit. This covers both the provision of school meals and sales from outlets such as vending machines, trolleys, kiosks and tuck shops regardless of where they are sited. Note that where the income and expenditure are passed through a non-VAT registered organisation (for example the School Fund) no VAT need be accounted for.
However, where sales of food and drink by a LEA maintained school to its pupils are at cost or lower they qualify as being closely related to the provision of education and are therefore outside the scope of VAT. Again this covers both the provision of school meals and sales from outlets such as vending machines, trolleys, kiosks and tuck shops regardless of where they are sited. The sales must be made by the LEA or school governing body to qualify as non-business, similar sales made by parent teacher associations or other bodies do not qualify.
Sales to Staff and Visitors
VAT must be accounted for on all sales of taxable food and drink.
Supplies by Catering Contractors
Sales by catering contractors direct to students/pupils must be standard rated as they are providing a taxable supply.
Where a catering contractor acts as our agent and supplies meals to Bucks County Council who then supply the meals to students/pupils, the caterer must charge VAT on all sales to Bucks County Council. However, Bucks County Council can reclaim the VAT and does not have to charge VAT on the meals sold on to pupils, even when they use the catering contractor as the agent to collect the income.
Vending Machines
Where the school stocks the vending machine and collects all the income, this should be considered within the above rules. Where the school merely receives a commission this is deemed to be payment for the right to site the vending machine on Council property. The commission must be treated as consideration for the right to occupy land, like a letting, and is exempt.

Charities

There is no blanket exemption for charities from the VAT system. However, certain supplies made to charities are specifically relieved from VAT. Some supplies are zero rated or reduced rated when purchased by charities regardless of whether the charity is VAT registered. For each relief there are specific conditions that have to be met. Charities that want to take advantage of these must provide the supplier with eligibility declarations certifying that the conditions have been met. The following reliefs are available:
Advertising and goods connected with collecting donations.
The supply of advertising to a charity is zero rated. The zero rating covers advertisements on any subject, including staff recruitment. A charity can also purchase pre-printed collection boxes, envelopes and appeal letters at the zero rate. Low cost stickers, emblems and badges that a charity gives out in acknowledgement of a donation can also be zero rated.
Aids for the disabled
Supplies to charities of certain goods and services which charities make available to disabled people for their personal or domestic use are zero rated.
Construction
The construction of buildings, and certain works to protect buildings, intended to be used for solely non-business purposes or as a village hall or similar can be zero rated subject to certain criteria being met. In certain circumstances a charity can also benefit from zero rating for the construction of a ramp, widening a doorway or passage, or providing, extending or adapting a washroom or lavatory.
Energy-saving materials
The installation of energy saving materials, such as central heating and insulation, in residential accommodation or in a building used solely for relevant charitable purposes (meaning non-business purposes or as a village hall or similar) is liable to VAT at the reduced rate.
Equipment for producing 'talking' books and newspapers.
Charities and voluntary bodies caring for the blind and severely visually impaired can obtain zero rating for purchases of sound recording and reproducing equipment that has been designed or specially adapted for recording or reproducing speech for the benefits of such persons. In the case of reproduction equipment, zero rating will not apply where the equipment is available for use by anyone other then the blind or severely visually impaired. The zero rating also covers radios and cassette recorders purchased by charities for free loan to the blind, and the repair or maintenance of any equipment mentioned in this paragraph. However, the supply of cassette tapes is standard rated.
Medical and scientific equipment
the supply to a charity of certain goods that the charity will donate to an eligible body, such as a UK health authority, a hospital, a research institution or certain other charitable institutions can be zero rated. Where a charity is also an eligible body it may purchase certain goods at the zero rate for its own use. Zero rating will also apply to certain goods purchased by a charity whose sole purpose is to provide a range of care services for disabled people.
Fuel and Power
Charities have to pay VAT on supplies of fuel and power. However charities can claim the reduced rate where fuel and power is supplied for a qualifying use. Qualifying means supplied for use in a dwelling or certain other types of residential accommodation, such as children's home, hospice or care home for the elderly or disabled or supplied for use in charitable non-business activities such as free day care for the disabled.

Composite VAT Rates in SAP

Some suppliers have an agreement with HMRC that VAT is charged on a fixed proportion of the total goods supplied rather than on each item. The VAT rate applied is known as a composite rate.
An example of a composite rate is shown below.
A supplier has an agreement with HMRC that 20% of the total value of supplies is subject to VAT, an invoice for goods valued at £100 would show.
£80.00 no VAT
£20.00 plus VAT @ 20% of £4.00
The invoice should be endorsed 'as agreed by Revenue and Custom, x% of the value of our supply is subject to VAT at the standard rate'. If the invoice does not show this information the please contact the VAT Officer.
When paying an invoice of this type, the total value of supply needs to be split between the equivalent vatable and non-vatable proportions and entered as two separate lines in SAP, one with the VAT at 20% and one without (e.g. zero rated).
If you have any problems with processing such an invoice or are unsure as t whether it is a valid VAT invoice please contact the VAT Officer.

Courses/Training

All training or education provided for no charge is non-business, therefore outside the scope of VAT.
Training which is chargeable is exempt.

Donations

Financial support
There is no VAT on unconditional gifts of money to the Council. VAT will apply however if there are clearly identifiable benefits in return for the donation.
Donated Equipment
Free gifts of equipment, with no strings attached, received from a VAT registered donor are liable to VAT based on their cost to the donor. The donor will issue a VAT only invoice for the VAT liability which can be reclaimed in the normal way.
When free gifts of equipment, with no strings attached, received from a non-VAT registered donor, the donor is unable to reclaim the VAT either themselves or through the establishment.
Where goods are given to establishments which are obliged to do something in return, each party (if registered for VAT), has to account for VAT on the open market value of the goods or services supplied.
Donated Services
Provision of donated services for no consideration is not a supply for VAT purposes.
Purchases made with Donated Funds
VAT can be reclaimed on purchases made by establishments with donated funds provided that all the following steps are taken:

  • the purchase is made using the County Council's ordering procedure so that the tax invoice is addressed to the County Council
  • the County Council receives the goods and retains ownership of them
  • payment is made from County Council funds.

VAT is not recoverable if there is a benefit to the donor or a third party or if any of the above conditions are not met.

Employee's Expenses

Subsistence and Removal Expenses
If the County Council reimburses the employees for the precise amount incurred, any VAT incurred may be reclaimed subject to the production of VAT invoices. However, VAT cannot be reclaimed if the County Council pays a fixed or flat rate allowance to its employees.
If the removal and relocation expenses incurred by an employee exceed the maximum allowance, VAT can only be recovered on that proportion reimbursed by the Council.
Mileage Allowance
New rules that came into effect from 1 April 2006 require all mileage claims be supported by VAT invoices/receipts. Due to proceedings taken against the UK by the European Commission, employers are now only able to recover VAT on road fuel purchased by employees if the employer holds a valid VAT receipt for the fuel. Unfortunately this will involve some extra steps to be taken in order to comply, but the process we have put in place is designed to be as simple as possible to help reduce any additional administration. For journeys undertaken from now on.....
Employees undertaking business mileage must:

  • Ask for a VAT receipt when purchasing fuel.
  • Attach these VAT receipts to their travel claims (the VAT receipt needs to show that fuel was purchased in advance of the journey(s), and sufficient fuel was purchased to cover the miles claimed.
  • Should a receipt cover subsequent claims then a note should be included on the later claim form(s) to this effect. Please note that separate receipts are not necessarily required for each journey claimed as one receipt may cover several journeys.

Managers must:

  • Ensure that an appropriate VAT receipt is provided when authorising travel claims for payment.

The Council is unable to reclaim VAT on mileage without the supporting VAT receipt for the fuel element and this may result in a charge to your cost centre in respect of the unrecovered VAT.

Lettings

Facilities for Sport and Physical Recreation

The letting of facilities for playing any sport or taking part in physical recreation is normally standard rated. However, the letting may be exempt if either:

  • The letting is for over 24 hours, and is provided to a person who has exclusive control of the facilities throughout the period

or

  • The facilities are let for a series of sessions where all the below apply:
  • the series consists of ten or more sessions:
  • each session is for the same sport or activity, and takes place in the same place:
  • the interval between each session is at least a day and not more than 14 days:
  • the series is paid for as a whole or there is written evidence that payment is to be made in full for the series whether or not the right to use the facility for any specific session is actually exercised. A formal agreement, exchange of letters, or an invoice issued in advance requiring payment for the sessions specified on the invoice would be sufficient evidence. Provision for a refund in the event of unforeseen non-availability of the facility would not break this condition but provision for a refund in other circumstances would:
  • the facilities are let out to a school, club, association or an organisation representing affiliated clubs or constituent associations:
  • the person to whom the facilities are let has exclusive use of the facilities during the sessions.

General purpose halls which merely have floor markings so that they may be used for playing sports do not classify as sports facilities except where equipment is provided to enable the hirer to play a specific sport. Lettings of such halls are therefore exempt.

Lettings: other Premises

The hiring out of school classrooms, halls etc. is an exempt supply and VAT does not have to be added to the cost of the hire. However, any services such as hire of equipment, use of materials, catering etc. which are charged in addition to the basic hire, are standard rated supplies and VAT should be charged. The various charges should be shown separately on the invoice.

Mini Buses

VAT should be charged at the standard rate on the hire of a minibus unless one of the following conditions is met:

  • the mini bus is used by another County Council establishment (outside the scope of VAT)
  • a driver is provided with the minibus and the bus is suitable for carrying 10 or more people (zero rated)
  • a driver is provided and the minibus with normal capacity of 10 or more people has been adapted to carry passengers in wheelchairs (zero rated).

MIS Coded VAT

When you monitor your budget you may find that an amount showing in SAP is not what you expect to see. It may be that the associated VAT has been recorded incorrectly, for example, you may expect to see £100.00 expenditure but £120.00 is showing because the VAT has not been allocated out. This can be corrected by a journal.
Send an e-mail to the VAT Officer to request that the VAT is correctly allocated and include details of the original transaction, e.g. the cost centre, general ledger code (g/l), period and document number. You will need to specify the amount actually coded and amount that should have been coded. The VAT Officer will correct the mis-coding and will send you an e-mail to confirm that this has been done.

Music Tuition and Hire of Musical Instruments

Where a school asks for a contribution towards the cost of music tuition this will be non-business in the following cases:

  • The tuition is provided as part of the normal school curriculum
  • It is provided outside the normal school curriculum (offered as an additional activity outside the normal school timetable) and the charges are at or below cost.

If a third party provides the tuition and the payment is direct to that third party then VAT will have to be accounted for by the third party.
Where a school hires out musical instruments this will be non-business in the following cases:

  • The instrument is hired for use in the normal school curriculum

The instrument is hired for use outside the normal school curriculum and the charges are at or below cost.

Private Funds

Private funds are subject to VAT in the same way as any other trading body.
Included are all funds controlled by the establishment or members of staff on behalf of the establishment. All of these funds are grouped together to determine the limit for registration.
Excluded are PTA Funds and other funds controlled by an independent body with its own constitution.
You will have to register if:

  • At the end of any month the value of the taxable supplies you have made in the past 12 months has exceeded the limit for registration.
  • At any time there are reasonable grounds for believing that the value of taxable supplies you will make in the next 30 days will exceed the limit for registration

With effect from 1 April 2010 the limit is £70,000.
To test if your fund needs to register:

  • If the Funds income for the last year does not exceed the limit - No action required
  • Deduct from the Funds income:
    • donations
    • bequests
    • voluntary contributions (provided that the donor received no benefit in return for the contribution)
    • collection of income for onward transmission to a third party (for example school trips, photographs)
    • If the Funds income for the last year does not exceed the limit - No action required
  • If the Funds income still exceeds the limit consult your financial advisor or the Council's VAT Officer.

VAT Free Sales to Pupils

Buckinghamshire schools are able to offer VAT-free sales to pupils of items closely related to education, including musical instruments and laptops, providing the following criteria are met:

  • The goods are services must be an integral part of the education provided
  • The pupil must receive education from the LEA - either an LEA maintained school or in connection with some other LEA run educational activity, such as an orchestra
  • The goods and services must be purchased from the LEA
  • Payment must be made to the LEA (Budget Share)
  • Evidence must be kept to show that the recipient of the goods and services has been receiving education from the LEA, and that what has been supplied was essential to that education
  • The price of the goods and services supplied must be at or below cost. "Cost" means the full overhead-inclusive price of supplying the goods and services to the pupil and may include an administrative cost
  • The goods are not clothing or sports equipment.

In certain cases goods may be leased, and the same criteria will apply. HMRC no longer requires that the goods closely related to education must be regularly used in class but rather that they must be necessary for delivering the education to the pupil. in the case of a musical instrument, this would normally mean that it would have to be bought regularly into class or to rehearsal and performances of the school band or orchestra. Schools may discourage pupils from bring laptops into school for insurance or security reason as the main use would be at home, but this would not necessarily disqualify the VAT-free sale to the pupil. However common sense must be applied; if a pupil wished to buy a laptop shortly before finishing full time education or wished to buy more than one a year, you could assume that the main use would be for private or family use rather than the pupils education, and so you should refuse to sell VAT free.
Now that the rules regarding regular school use has been relaxed, it may be possible to purchase large musical instruments, such as harps, which were previously excluded from the scheme. If you do wish to purchase a large musical instrument for resale to a pupil, please contact the VAT Officer who will seek the agreement of HMRC before purchase and resale goes ahead.
Please note that the costs of any VAT that cannot be reclaimed due to non-compliance with HMRC rules will be borne by the school.

Sales on behalf of third party

An agreement to sell goods or services on behalf of a third party brings into effect an agent/principal relationship.
The agreement may be written, oral or merely inferred from their general relationship and the way the business is conducted. Whatever form this relationship takes, the following conditions must be satisfied:

  • It must be clearly established between the agent and the principal that the agent is arranging transactions for the principal rather than trading on his own account
  • The agent must never be the owner of the goods
  • The agent must not alter the nature or value of any supplies made between the principal and third parties.

School Photographs

There are two ways in which the photographer can supply photographs:-

  • Direct to the pupils
  • To the School

Sales of photographs by the photographer directly to pupils/parents
The photographer must charge VAT on the final selling price of the photographs to the pupils.
The photographer will pay a commission to the school for the use of the school premises.

  • If the school is a community or voluntary controlled school, the school will be acting as an agent of the LEA. The school must account for VAT on the commission received.
  • If the school is a foundation or voluntary aided school, the Headteacher is an employee of the Governing Body. If the Governing Body is, or is required to be, VAT registered, it must account for VAT on the commission received.

Sales of photographs by the photographer to the school
The photographer must account for VAT on the price actually charged to the school. The school is able to recover this VAT and must account for output tax on the full value of the supply to the pupils.

School Shops

School Fund
Usually school shops selling tuck and other supplies are operated through the School Fund. Providing the School Fund is not required to be registered for VAT, VAT will not be recoverable on the purchases and it will not be chargeable on the sales.
Budget Share
The school shop may be operated through the school budget share. If goods are sold at a profit, VAT may be recovered on the purchase of supplies but VAT will have to be accounted for on all the sales. However, a tuck shop may be considered a non-business activity if sales are kept at or below cost.

School Trips

Educational School Trips
All educational school trips can be treated as a non-business activity, provided that the trip is deemed to be necessary for delivering education to the pupils as part of the school's approved curriculum. Documentary support of this should be kept by the school and should be sufficient to satisfy the requirements of the local VAT Officer.
All income and expenditure should be processed through the School Budget Account. A full VAT invoice should be obtained from your supplier which should be processed through the normal school budget payment system. Where a cash payment has been made a VAT receipt should be obtained and a reimbursement made from the School Budget Account. The VAT may be recovered in both cases. VAT does not need to be accounted for on the income as it is outside the scope of VAT.
The VAT on school trips organised through a tour operator can be recovered if the operator has sought the approval of HM Customs & Excise that the trip falls outside the Tour Operators’ Margin Scheme.
Recreational School Trips
Recreational schools trips where there is no educational content are considered to be a business activity. The income and expenditure should be processed through the School Fund.

School Uniform

There is no specific relief from VAT for items of school uniform, any such items are subject to the normal VAT rates applicable to supplies of children's clothing. Size restrictions determine which garments are for children under 14 years of age and these may be zero rated. Other garments will usually be standard rated.
However, if garments are supplied exclusively for pupils under 14 years of age and the garments bear a prominent badge or logo identifying them as part of the official uniform of a school, e.g. badged blazers or sweatshirts printed with the identity of the school, then the supply can be zero rated irrespective of size.
Unidentified items such as plain shirts, trousers and skirts and unbadged blazers and all uniform items for school with pupils 14 years and older remain subject to the normal criteria for zero rating. Clothing and footwear may be zero rated if it is designed for young children (under 14) and not suitable for older persons. Otherwise school uniform will be standard rated.

Telephones

In some situations employees, members or clients may pay their telephone bills and recover all or part of the costs from the County Council. The employee must bear the VAT on the part of the total cost not reimbursed and the County Council may recover the VAT relating to that proportion of the account it meets providing the tax invoice (the original account) is retained by the County Council
Income in respect of private telephone calls made from official telephones are subject to VAT at the standard rate.

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