VAT considerations for community asset transfers

VAT Considerations for Community Asset
Transfers and Building Projects
Centurion VAT Specialists Ltd
15 March 2016
Julie Rawlinson-Smith: Senior Manager

The Team
(c) 2016 Centurion VAT
Specialists Ltd
2

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 Ltd3

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 Liabilities
VAT 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.

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

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 to
de 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 Ltd
VAT Analysis of VAT on Purchases
January
Invoice Description Net VAT
Wholly
used for
Taxable
Wholly
used for
Exempt
Wholly used
for non
business Mixed use
1 Till repairs 50 10 10
2 Audit fee 1000 200 200
3
Directors
Membership to Golf
Club 500 100 100
4
Repairs to flat above
shop rented out 750 150 150

Partial exemption
De 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.

VAT Difference between Councils & Charities

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

VAT & Funding Applications

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?

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

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.

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: Julie.rawlinsonsmith@centurionvat.com
Liz Maher: liz.maher@centurionvat.com
Andrea Brindley: andrea.brindley@centurionvat.com
www.centurionvat.com
emailus@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

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