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VAT for Local Councils

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

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VAT for Local Councils

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  1. VAT for Local Councils A training module for parish and town councils Prepared for the Hampshire, Oxfordshire and Berkshire Associations of Local Councils

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. What is the scope of VAT? • VAT is charged on taxable supplies • made by a taxable person • in the course of a business

  8. Business & non-business Non-business activities Acting as a public authority providing services for free or under statutory duty (e.g. allotments, burial grounds) leases of £1 or less or of negligible scale and would not distort competition Business activities making supplies in return for payment, with a degree of frequency and scale, continuing over time, Which could be provided by the private sector

  9. 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

  10. 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

  11. VAT Business Non-business Taxable 20% 5% 0% Exempt

  12. 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

  13. Exercise 1

  14. 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

  15. 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

  16. 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)

  17. 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

  18. VAT Business Expenditure Parks Allotments Public Hall Admin Events Non-business Mixed Taxable Exempt

  19. 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

  20. 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)

  21. Exercise 2

  22. 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 non-business purposes • Not do something for the donor, or a third party, in return for the payment

  23. 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

  24. 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)

  25. Exercise 3

  26. 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

  27. 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

  28. 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

  29. 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

  30. Questions?

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