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www.le.ac.uk
VAT to Basics
Departmental Finance Presentation
3 July 2012
www.le.ac.uk
Roger Bennett
University Tax Manager
FINANCE OFFICE
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VAT – the Basics
• VAT - tax on final consumption of
goods/services
• 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
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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
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• 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
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UoL Zero Ratings
• Zero rating on some goods and services,
as a charity
– Advertising - suppliers may ask for acertificate to declare our charitable status:
contact the Tax Office if required
– Goods and services for medical or veterinary
research, training, diagnosis or treatment
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VAT Exempt
• Some goods and services are exempt as it
is considered inappropriate to tax them
– Health– Education
– Financial Services
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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
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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
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A Quick GuideIncome VAT code Expenditure VAT code
Outside the Scope Y6 T3
VATable Supply YS T2
Zero Rate Supply Y3 T2
Exempt Supply Y1 T3
EU Export Y4 (Goods)Y5 (Services)
T2
EU Import T4 (Fully recoverable)T5 (non recoverable)PT (part recoverable)
Mixed Use Purchase PS
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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
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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)
(taxable)
• Grant funding received from a not for profit
organisation(Y6)
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‘Education’ (Exempt)
• Tuition fees
• Short courses and workshops
• Academic conferences
• Hire of rooms to external organisations
• Medical diagnosis and treatment
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Input Tax (Expenditure)
• VAT charged to us on purchase invoices -
we pay this to our suppliers
• The supplier invoice should clearlyidentify 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
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Purchase Invoices
• Recovery status of VAT
– Input VAT (VAT on purchase invoices) can be
fully recoverable, partly recoverable or non-
recoverable
– Recovery status depends on what the
purchase has been used for
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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 apositive 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
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• 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
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• 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
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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) - video
– sterilising - laboratory
– refrigeration• Full details on HMRC website
(http://www.hmrc.gov.uk/charities/vat/charity-funded.htm)
or contact the Tax Office
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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 reversecharge VAT (we apply VAT on the supply
ourselves)
– 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
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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 ratedtherefore we are not charging VAT.
– What VAT code do we use to raise the sales invoice?
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Need Assistance or Advice?
• Taxation Section – Room 172, FJB
– Roger Bennett (University Tax Manager) ext 2475
– Raj Bhola (Assistant Tax Accountant) ext 2379 [email protected]
– Jos Puri (Direct Tax Accountant) ext 5182 [email protected]
• University Tax Office Website
– http://www.le.ac.uk/finance/infoforms/vat/taxhome.html
• HMRC website helpful for detailed VAT rules - use searchor look under ‘charities’ or ‘education’ section
– http://www.hmrc.gov.uk/