VAT for Local Councils
A training module for parish and town councils
Prepared for the Hampshire, Oxfordshire and Berkshire
Associations of Local Councils
Objectives
• To give an overview of the relevant legislation and guidance
• To explain key concepts of VAT
• To outline the processes involved
• To highlight common problem areas
• To provide signposting to more detailed guidance
Course Outline
•
Legislation and guidance
•
Making supplies of goods and services
•
VAT Registration
•
Recovering VAT on purchases
•
Partial exemption and opting to tax
• Using grants and donations
•
Open forum
Legislation
Value Added Tax Act 1994
•
Section 33 – Reclaim of VAT by public bodies
• Section 42 – Registration of public bodies for VAT
• Section 96(4) – definition of public bodies
• Schedule 7A – Reduced rate supplies
• Schedule 8 – Zero rate supplies
• Schedule 9 – Exempt supplies
• www.legislation.gov.uk
Guidance
• VAT Notice 749 – Local Authorities and similar bodies
• VAT Notice 742 – Land and Property
• VAT Notice 742A – Opting to Tax
• VAT Notice 701/1 – Charities
• VAT Notice 700 – the VAT guide
• www.hmrc.gov.uk/vat/index.htm
Guidance
• VAT Notice 701/32 – Burial & Cremation
• VAT Notice 701/41 – Sponsorship
• VAT Notice 701/45 - Sports
• VAT Notice 700/45 – Error correction
• www.hmrc.gov.uk/vat/index.htm
What is the scope of VAT?
VAT is charged on taxable supplies
made by a taxable person
in the course of a business
Business & non-business
Business activities
Non-business activities
making supplies in return
for payment,
Acting as a public authority
providing services for free
or under statutory duty (e.g.
allotments, burial grounds)
with a degree of frequency
and scale,
leases of £1 or less
continuing over time,
Which could be provided
by the private sector
or of negligible scale and
would not distort competition
Business & non-business
Business activities may be:
• Taxable supplies (Standard, reduced or zero rated)
• Exempt supplies (Mainly land and property)
“A taxable supply is a supply of goods and services in the
United Kingdom, other than an exempt supply”
Section 4(2) VAT Act 1994
Business & non-business
Tax status of supplies outlined in Section 29 of the VAT
guide (VAT Notice 700), but specified in VAT Act 1994)
• Schedules 7A – reduced rate
• Schedule 8 – zero rate
• Schedule 9 – exempt supplies
VAT
Business
Taxable
20%
5%
Non-business
Exempt
0%
Registration
Does my council need to register for VAT?
• Yes, if your council makes any taxable supplies
(including zero rated) in the course of a business
• Section 42, VAT Act 1994
• Only enforced if the output tax (VAT charged to
customers) would exceed £1,000 per annum
• Registration thresholds for businesses do not apply
Exercise 1
Public Bodies
• Special regime for public bodies
• Section 33, VAT Act 1994
• Local authorities, Internal Drainage Boards, Passenger
Transport, Port Health and Police Authorities, BBC,
Probation Committees, NRA, National Parks...
• NOT Parish Meetings, Village Hall Committees,
Community Associations, Parochial Church Council or
grant funded bodies
Reclaiming VAT
• All parish councils, whether VAT registered or not, can
reclaim VAT on their non-business activities
• VAT registered parish councils can reclaim VAT on their
standard, zero and reduced rate business activities
• VAT exempt supplies treated differently
Reclaiming VAT
To reclaim VAT on non-business activity,
a council must:
• Place the order
• Receive the supply
• Receive a tax invoice addressed to it
• Pay from its own funds (including funds awarded to it)
Exempt Supplies
• Supplies of land or buildings generally VAT exempt
• Including leases over £1 and blocks of 10 or more sporting
lets
• Input tax incurred on creating exempt supplies only
reclaimable if less than £7,500 per annum (or 5% of
turnover for large bodies)
• Partial exemption calculation
VAT
Expenditure
Mixed
Business
Taxable
Parks
Allotments
Public Hall
Admin
Events
Exempt
Non-business
VAT on large projects
• VAT Notice 708 – Buildings and Construction
• VAT Notice 742 – Land and Property
• VAT Notice 742A – Opting to tax
• Supplies of land or buildings generally VAT exempt
• Including leases, or blocks of 10 or more sporting lets
• Input tax on exempt supplies only reclaimable if less than
£7,500 per annum
VAT on large projects
Typical example -
• Build a pavilion for £200,000 (VAT £40,000)
• Leased to football club for £500 a year
Can't reclaim VAT
• Options
• Option to tax (exempt supply becomes taxable)
• Let for £1 or less, full repairing lease (non-business)
• Don't lease, allow weekly bookings (taxable)
Exercise 2
Grants & Donations
Where a council uses money given to it for a specific
purpose, it must:
• Remain owner of the goods
• Use them, or make them available, for its own nonbusiness purposes
• Not do something for the donor, or a third party, in return
for the payment
Grants & Donations
VAT cannot be recovered under section 33 if:
• You give or do something in return for the money
• You agree to allow a third party to benefit
But this does not stop you:
• Acknowledging the donation on a plaque or in a programme
• Complying with reporting conditions of a grant
Grants & Donations
VAT cannot be recovered on money that is outside of the
council's accounts, such as:
• Money paid into a community project fund held by another
body
• Trust funds (unless the council is sole managing trustee and
the trust's activity is difficult to distinguish from the councils
activity)
Exercise 3
Reclaiming VAT
Unregistered –
• VAT form 126
• Unique “UB” reference number
• Claim at least annually (can be monthly)
Registered –
• Quarterly return, done online since April 2010,
• unique VAT registration number
• Account for “Input” (purchases) and “output” (sales) tax
Accounting for VAT
• VAT column in cash book
• Including income records if VAT registered
• VAT control account in ledger (if used)
• Receipts and payments accounts include VAT
• Income and expenditure accounts exclude VAT, except as a
debtor on the balance sheet
Charity accounts
• VAT treatment of charitable funds different from council
taxpayers fund
• Section 33 recovery of non-business VAT does not apply,
unless council is sole managing trustee
• Separate meetings should be held when acting as trustees,
with separate minutes
Conclusion
• Keep up to date
• Attend training/networking
• Don't guess, ASK
• Take advice
HMRC National Advice Service – 0845 010 9000
HMRC VAT Written Enquiries Section, Alexander House,
Victoria Avenue, Southend, Essex SS99 1BD
enquiries.estn@hmrc.gsi.gov.uk
Questions?