Care & Repair Cymru:
VAT- What you really need to know
Cardiff – 19 Sept 2012
Liz Maher
The Team
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(C) Centurion VAT Specialists Ltd 2012
Conversation Topics
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Why being a Charity doesn’t take you outside the scope of VAT
What you can buy in VAT Free or Reduced Rated
Delivering Welfare services in the VAT context
Grants v Contracts: When do you make supplies for VAT purposes?
Cost Sharing VAT exemption: A new VAT relief for shared services – is it
right for you?
(C) Centurion VAT Specialists Ltd 2012
What is VAT?
• VAT is a tax on transactions undertaken in the course of
business
– Goods
– Services
• Accounting for VAT on income:
– right amount of tax declared at the right time
• Can I recover the VAT I am charged by suppliers?
– Right to recover VAT on costs
– Evidence to support recovery
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(C) Centurion VAT Specialists Ltd 2012
VAT Treatments:
Business Activities:
• Taxable:
– Standard (20%)
– Reduced (5%)
– Zero (0%)
• Exempt
Non Business Activities:
• No VAT charged on income
• No VAT recovery on costs supporting non business income areas
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Charities
Can a charity makes business supplies for VAT purposes?
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VAT context of a social
enterprise company
• Is it making supplies by way of business?
• Does it have charitable status?
• Tax Case: Furniture Finders of Winsford Ltd
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Business and Non-business
Activity
Business
Exempt
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Nonbusiness
Taxable
Example
Grant paid by
Local Council
Sponsorship
Welfare
Services
Charity
Charges paid
by people
at
commercial
rates
Donations
What sort of business
supplies could a charity make
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Rent out office space or function rooms
Selling goods
Membership charges
Selling or leasing buildings and land
Selling tickets to a fund raising event such as a dinner/concert
Sponsorship income
Advertising income
Delivering vocational training/education for a charge
Being paid to provide welfare advice or welfare services
Seconding staff
Shared services recharges
(C) Centurion VAT Specialists Ltd 2012
Non Business Income
• Grants
• Donations
• Legacies
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Business/Non Business
• Benefits and disadvantages
• Benefits include:– VAT relief on building costs
– Reduced rate fuel
– Charity reliefs
• Disadvantages include:– Substantial loss of VAT
– Administrative burden
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VAT Reliefs
• What to take advantage of as a Charity
• Delivering Welfare Services when you’re not a charity
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Special Reliefs for supplies
by Charities
Z/R
Sale of Donated Goods
R/R
Exempt
X
Fundraising Events
X
Welfare Services
X
Welfare Advice
X
X
Sporting Services
X
Cultural Services
X
Education & Vocational
Training
X
Advertising Income
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(C) Centurion VAT Specialists Ltd 2012
X
X
Welfare Advice: Reduced
Rate
• Effective from 1 July 2006
• Supplies by a charity or state regulated private welfare agency or
institution
• Advice relates to mental or physical welfare of elderly, sick distressed, or
disabled persons (home safety).
• Not goods unless they convey the advice ( CD’s with information in).
• Advice provided solely to an individual for their own benefit is VAT
Exempt.
• Free welfare advice is a non business activity.
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(C) Centurion VAT Specialists Ltd 2012
Mobility Aids for the Elderly:
Reduced rate
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Effective from 1 July 2007
Services of installing “mobility aids”
Supply of “mobility aids” by person installing them.
Used in domestic accommodation by a person aged 60 or over
at time of supply
• Not goods alone; repairs or replacements once installed;
installed in care homes or similar.
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(C) Centurion VAT Specialists Ltd 2012
Special reliefs for Purchases
by Charities
• Construction of new building for non-business use by a charity
or use as a village hall or similar
• Certain work on protected buildings (Budget 2012 changes)
• Certain aids and adaptations for disabled or chronically sick
people
• Drugs for use in medical treatment or research
• Certain vehicles adapted for the carrying of wheelchairs or
stretchers
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Special reliefs for Purchases
by Charities cont.
• Advertising and goods connected with collecting donations
• Equipment for medical use e.g. for donation to an NHS
hospital
• Fuel and power for qualifying use
• Supply and installation of energy saving materials (reduced
rate to be removed on RCP building in Finance Bill 2013)
• Sea rescue equipment
• Equipment for producing talking books and newspapers
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Fundraising Activities
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Grants
Donations
Legacies
Sponsored events and charity challenges
Raffles, prize draws etc
Affinity credit cards
(C) Centurion VAT Specialists Ltd 2012
Relevant Charitable Purpose (RCP)
• Supply of a building to a charity that is used otherwise in
the course or furtherance of a business is zero rated.
• Zero rating applies to all of a building or part of a building
• All or part of the building must be used solely for nonbusiness purposes
• Charity must issue a certificate to the building contractor
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(C) Centurion VAT Specialists Ltd 2012
Relevant Charitable Purpose (RCP)
• Zero rating can go back 4 years
– consider existing buildings to see if there is scope for recovery
– But need to consider original funding & if there are any pay back
clauses
• Plan for new build to maximise cash flow
• Zero rating also applies to certain disability works
– Purpose built access such as ramps or lifts (chair/stair)
– Disabled toilets
– Certificate required
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Other Reduced Rated items
• Energy Saving areas
• Domestic fuel
Grants v’s Contracts
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When is a Grant not a Grant
• Is the payment freely given?
• Does it entitle the giver to any benefit or right?
– Council appoints charity to run one of the council’s homeless shelters
and gives them £50,000.
– Charity works with homeless people in the city. City Council gives it
£50,000 to support the charities activities.
– Charity receives monies from ESFund to support its provision of basic
skills experience to those furthest from employment.
– Free advice provided by charity to the public in return for grant from
local authority.
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(C) Centurion VAT Specialists Ltd 2012
A donation or not a donation
• Three Counties Dog Rescue Charity: new owners have to pay a
set donation of £120 towards costs?
• Tron Theatre Ltd: for a donation of £150 towards the costs of
refurbishing the theatre and received minimal benefits?
• Charity supports distressed authors and receives a bequest of
royalties from the executors of a literary estate?
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Aberdeen Sports Village Ltd
• ASV a JVC between Aberdeen City Council & Aberdeen University
• ASV assessed for £352,472 on funding received from ACC & AU
• Annual Grant Funding:
– Was there a supply of services by ASV to ACC & AU?
– If there was a supply of services, what was the consideration?
– If there was a consideration, what was it’s nature? Was it a donation
or was there a direct link between the payer and the recipient
sufficient to incur a liability to VAT?
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VAT Cost Sharing Exemption
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Principles of the Legislation
• Used by a wide variety of sectors
– Charities, Universities, FE Colleges, Housing Associations, Residential
Care Homes, Banks, Insurance Companies
• Straightforward to operate, minimising compliance & admin
• Does not create opportunities for abuse or avoidance
• No standard EU implementation: each State different
methods
• Some EU States facing infraction proceedings
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CSG Model: Supplies
B
C
A
Staff
costs
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CSG
Ltd
Other
costs
Key Conditions:
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HMRC’s definition of an “independent group of persons”
All members must carry on exempt or non business activities
HMRC’s definition of “ directly necessary” supplies
Direct re imbursement of costs condition
Distortion of competition condition
(C) Centurion VAT Specialists Ltd 2012
General Provisions:
• Applies only to qualifying services which are directly
necessary for the exempt/non business activities of qualifying
members
• Does not cover goods unless ancillary
• CSG can include overseas members
• A CSG could be a charity if it qualifies
• If a public body is a member it will have to consider whether
the EU Procurement Directive applies to its purchases from
the CSG
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CSG Model: Legal Structure
B
30% Share
A
C
40% Share
30% Share
Cost Sharing
Group Co ltd
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Independent Group:
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Established, owned by members for their co operative benefit
Can be equally controlled
One or more members may have control
All must have a legal interest
Min 2 members no maximum
No shares held by some one not a member
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Independent Group cont:
• Legal form choice of members;
– For profit partnership – exemption applies to qualifying supplies
– Limited partnerships – all partners limited & general must qualify
– Unincorporated Associations
• Care when recruiting members – distortion of competition issue
• Use to which members put the services must be verified by CSG
• All members must receive Group 16 supplies
• 12 month rules on membership if supplies cease to be made to a member
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(C) Centurion VAT Specialists Ltd 2012
Exempt and/or Non business
• All members must have exempt and/or non business activities
• Qualifying Membership Test:
– 5% or more exempt/non business in immediate 12 months prior to
joining or,
– Last completed Partial Exemption/non business year or,
– Clear intention to receive and does receive qualifying services in next
12 months from date of joining and,
• Supplies are used directly within 12 months of receipt by member
for 5% or more exempt / non business onward supplies
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(C) Centurion VAT Specialists Ltd 2012
Exempt and/or Non business
con’t:
• Do not have to be VAT registered to join but must meet
qualifying membership test or intend to within 12 months of
joining
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(C) Centurion VAT Specialists Ltd 2012
Directly Necessary Services:
• Directly Attributable rule applies
• Mixed use services will not qualify
• Simplification rule:
– Negligible level of taxable supplies = less than 15% taxable activities
– Past or intention to meet in next 12 months rule
– All supplies received from CSG will be exempt
• Practical application based on Return data/ Partial Exemption/
Business/non business calculations
• If “intention to meet” in next 12 months fails (only allowed to look
forward once)
• Sectorisation possible to meet 15% rule
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(C) Centurion VAT Specialists Ltd 2012
Direct Re imbursement
• No margin added to establish recharge cost to secure
exemption
• Reimbursement of costs includes:
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Cash payments/liabilities
Costs incurred but not invoiced (accruals)
Amounts to meet future anticipated expenditure
Depreciation in value of CSG assets
Charge to build capital fund to purchase an asset
• Care regarding recharges for management services
• Interaction with Transfer Pricing regulations
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(C) Centurion VAT Specialists Ltd 2012
Distortion of Competition
• A CSG is a cooperative self supply not an outsourcing
arrangement
• Should be no competition in a marketplace
• If all conditions are met there should be no distortion of
competition issue
• Must have no “characteristics of an independent operator
seeking a customer base in order to generate profits”
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(C) Centurion VAT Specialists Ltd 2012
If you’d like to continue the conversation drop in
to our stand for more chat!
Liz Maher
Andrea Brindley
Julie Rawlinson-Smith
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(C) Centurion VAT Specialists Ltd 2012