VAT considerations for community asset transfers

VAT Considerations for Community Asset Transfers and Building Projects

Centurion VAT Specialists Ltd15 March 2016

Julie Rawlinson-Smith: Senior Manager

The Team

(c) 2016 Centurion VAT Specialists Ltd

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Agenda

• Basic UK VAT Rules• Registering for VAT• VAT liabilities of supplies• Recovering VAT• VAT Difference between Councils & Charities• VAT & Funding applications• Managing Property Assets & the VAT implications

(c) 2016 Centurion VAT Specialists Ltd 3

Basic VAT Principles VAT is chargeable on a

taxable supply of goods or services;

made by a taxable person;

made in the UK;

in the course of business.


Scope of VAT

• A tax on transactions


Basic UK VAT Rules:Basic VAT rules:

Output Tax is the VAT charged on taxable supplies made in the UK and is paid over to HMRC.

Input Tax is the VAT incurred on costs borne by a business and can be offset against the Output Tax due on the VAT return subject to certain rules on recovery


Basic Rules: VAT LiabilitiesVAT applies to supplies made by way of business:• Taxable: Standard / Reduced rate / Zero

• Exempt………………………………………………………………………………………………………….• Outside the scope/non business

• Some activities undertaken by a charity are non business supplies:• No VAT accountable on a non business income e.g. donations/grants• VAT on Costs relating to non business activities is blocked from recovery

• Supplies which happen Outside the UK will be outside the scope of UK VAT.• Statutory activities undertaken by local authorities or other public bodies may be non

business and outside the scope of VAT. Special VAT recovery rules can apply to these bodies but the rules will vary. Some will have no special recovery rules.


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VAT Registration


Making Supplies in the UK – What triggers a VAT registration

· Place of supply of goods in country· Place of supply of services in country· Acquisitions of goods from the EU· Importing services from outside the UK· Distance Selling – goods sold on line · Digital Services – delivered on line, not just web design type

services


UK VAT registration thresholds:

· Taxable supplies over £82,000 from 1 April 2015· Compulsory & Voluntary VAT registration· Distance selling threshold: £70,000 (from 1 Jan of the year in

question)


What entity is registered:• Sole Proprietor• Partnership• Limited Company• Unincorporated Association

• Single Entity or VAT Group Registration


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Liability Areas:


Zero Rated Areas• Transport

• Food

• Books, magazines and newspapers

• Some Reliefs for supplies to or by Charities

• Bank notes

• Caravans and houseboats

• Clothing and Footwear

• Construction of buildings

• Drugs, medicines, aids for the handicapped

• Sewerage Services and Water

• Talking Books for the Blind & Handicapped and wireless sets

• Protected Buildings• International Services• Gold• Imports, Exports• European Research Infrastructure Consortia


Reduced Rate Areas

• Fuel and Power for domestic or charity use• Certain goods and services in connection with energy efficiency • Residential Conversions• Grant funded installation of heating equipment or security goods or connection of gas

supply• Women’s Sanitary products• Children’s Car Seats• Residential Renovations and alterations• Contraceptive Products• Welfare Advice or Information• Installation of Mobility Aids for the Elderly• Smoking Cessation Products• Caravans• Cable-suspended Passenger Transport Systems


Exempt Areas• Education• Health & Welfare• Land• Insurance• Postal Services• Betting, Gaming, Dutiable Machine Games and Lotteries • Finance• Burial & Cremation• Subscriptions to trade Unions, professional and other public interest bodies• Sport, Sports competitions and physical education• Works of Art• Fund Raising events by Charities and other qualifying bodies• Cultural Services• Supplies of goods where input tax cannot be recovered• Investment Gold• Supplies of Services by Groups involving Cost Sharing


Other Non VAT areas

• Some examples where VAT is specifically not chargeable· salaries and wages· tips and gratuities· penalties and fines· compensation· rates and council tax


Standard Rate Areas

If it is a supply by way of business and

not covered in any of the other schedules then it will attract

the standard rate of VAT


Input Tax


Recovery of Input Tax• VAT is generally recoverable on expenses in relation to a

taxable business activity.

But not recoverable on:Business entertainment;Motor car purchase or lease *When related to exempt income (subject tode minimis rule)When related to non business activities.

* Partially recoverable on car leasing


Tax Evidence

No• Request for payment• Proforma Invoices• Statement• Purchase Order

Yes• Self Billing Invoices• Authenticated Receipts• Invoices• Less Detailed Invoices• Credit Notes


Analysing Input Tax use:Shop co VAT LtdVAT Analysis of VAT on PurchasesJanuary

Invoice Description Net VAT

Wholly used for Taxable

Wholly used for Exempt

Wholly used for non

business Mixed use1 Till repairs 50 10 10 2 Audit fee 1000 200 200

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Directors Membership to Golf Club 500 100 100

4Repairs to flat above shop rented out 750 150 150


Partial exemptionDe minimis levels for charity/business’s “insignificant proportion”

of input tax

• Not more than £625 per month on average i.e.£7500 p.a. and

• Not more than 50% of all input tax

If exempt input tax is less than these both limits, it can be recovered

Simplified tests introduced from April 2010 but the above rules still apply to annual adjustment calculation.


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VAT Difference between Councils & Charities


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Councils

• Special VAT Status – Section 33• Statutory Bodies that make Non

Business Supplies: social care/education/refuse collection

• Allowed to recover VAT incurred in making non business supplies

• Will have business income with mixed VAT liabilities

• De minimis Partial Exemption levels set higher than for charities

• Assessable back over 3 years

Charities

• No Special VAT status • Hospices can access section 33 relief in

part• Will make non business supplies – free

supplies of goods and services (funded either by grant support or donations/investments)

• No right to recover VAT on costs relating to non business activities*

• Same De minimis Partial Exemption rules as a normal business

• Limited VAT reliefs • Assessable back over 4 years


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VAT & Funding Applications


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Funding Applications

• Grant support or pitching to win a contract to supply goods or services?

• Leisure/Cultural assets transferred from the Council – will you own them outright or run them on behalf of the council and charge the council for your management services?

• Confusing language in documents = “bid should include VAT” what could that mean?

• How much VAT will you be able to recover?


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Managing Property• The “exploitation” of property is regarded as a business activity:

– Granting a lease in commercial/residential properties– Selling property– Surrendering an interest in property– Renting out a room/flat/house– Renting out office space or desk space and use of facilities– Holiday/Hotel/hostel accommodation – Access to sporting facilities– Admission to events– Advertising hoardings– Grazing rights/Fishing rights/mineral rights/tree felling rights


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Property Income VAT liabilities:• Zero/ Exempt/ Standard rated if by way of business:

– Influenced by the type of the property– The nature of the transaction (FH/Lease)– The age of the property – Whether the vendor has “opted to tax” their interest in the property– What the property will be used for

• Possible non business treatment if interests disposed of for a peppercorn.


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Capital Goods Scheme:• Triggered if you spend £250k plus VAT on any property related costs such

as buying a property, building from new/refurbishing/extending etc.• Requirement to monitor the use of that asset for a period of 10 intervals

(10 years effectively) • The VAT recovery treatment of the costs incurred at the start can

therefore be adjusted up or down as time passes as the taxable use of the property varies over that period.

• Some grant funders might expect additional improvements in recovery in later years on projects they’ve supported to be refunded to them.


Any Questions?


Contact:Centurion VAT Specialists Ltd: 01633 415390

Charity Specialist Team:Julie Rawlinson-Smith: [email protected]

Liz Maher: [email protected] Brindley: [email protected]

[email protected]


mailto:[email protected]



http://www.centurionvat.com/


We make every effort to ensure that the information contained in these slides is accurate as at the date of the event in which they formed the basis of the

presentation.

This presentation is for discussion purposes only and does not contain general or specific advice.

Please seek appropriate advice before making any financial decisions.


VAT considerations for community asset transfers

Government & Nonprofit

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