VALUE ADDED TAX University of Sunderland Group VAT Registration Number: GB

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1 VALUE ADDED TAX University of Sunderland Group VAT Registration Number: GB The following provides general information relating to VAT and details relating to the correct VAT coding for purchasing goods and services but does not cover all eventualities. If you do not find the answer to your query please contact the Planning and Finance Procurement Team. What is Value Added Tax (V.A.T.)? In theory, this is designed as a simple tax on the consumption of goods and services, and is imposed on the supply of all goods and services in the UK. So for many businesses, completion of the V.A.T. return is a matter of identifying the V.A.T. charged to customers, deducting the V.A.T. charged by suppliers and paying the difference over to HM Revenue & Customs (HMRC). Administration of V.A.T. is more complex for the University because of the wide variety of activities carried out with different V.A.T. rates and rules applicable. In particular, the status of the University and trading subsidiaries is different for V.A.T. purposes as follows: University Statutory charity University of Sunderland Enterprises Limited (U.S.E. Ltd) Commercial limited company Defined as eligible body for V.A.T. Treated as a business for V.A.T As an eligible body, supply of education and activities closely related to education are V.A.T. exempt As a commercial company, supply of the main business activities are V.A.T. standard rated Most of input V.A.T. is an irrecoverable cost because the University has mostly exempt activities Most of input V.A.T. is recoverable because U.S.E. Limited carries out mostly taxable activities As a charity, can take advantage of some charitable reliefs by zero rating e.g. certain advertising & certain items purchased for medical research Not a charity, therefore charity reliefs not available 1

2 What rates of V.A.T. are used? There are five classifications for V.A.T. purposes: Classification Explanation Examples Taxable at standard rate (SR) This is the most common rate. The V.A.T. to be accounted for is currently 20% Most equipment Most materials Stationery Consultancy charges Taxable at reduced rate The V.A.T. to be accounted for is currently 5% Certain fuel & power charges Taxable at zero rate (ZR) The V.A.T. to be accounted for is currently 0% Water & Sewerage Books - printed Train/Flight Tickets Hire of vehicle (10 or more seats) with driver Subscriptions to a magazine, journal, periodical etc (not electronic versions) Exempt from V.A.T. No V.A.T. accounted for Education Some property transactions Insurance Outside the scope of V.A.T. No V.A.T. accounted for Traders not VAT registered Non taxable activity 2

3 How does the University code invoices for V.A.T. on ORACLE? The accurate VAT coding is the responsibility of the member of staff making the transaction i.e. raising the purchase order or completing a purchasing/credit card transaction log. The person raising the order needs to identify the correct V.A.T. code based on the classifications above. The V.A.T. codes used by the University are as follows: Classification University code U.S.E. Limited code Taxable at standard rate (SR) 20 if can t recover it 17 if can be recovered 19 if can t recover it 18 if can be recovered Taxable at reduced rate 3 11 Taxable at zero rate (ZR) 1 6 Exempt from V.A.T. 2 7 Outside the scope of V.A.T. 4 9 Planning & Finance put the VAT return together using reports from the ORACLE and SAM system by each ORACLE VAT code. 3

4 How do I decide which code is correct? The supplier will be able to confirm whether they are VAT registered, and the V.A.T. status of any particular supply. In University, most invoices will be coded to V.A.T. code 20 as irrecoverable V.A.T. will be charged by the supplier. It is important to make sure the supplier provides a valid V.A.T. invoice for all transactions (including purchases on-line or via a purchasing card), as this will provide evidence that the invoice has been correctly coded. For any suppliers not V.A.T. registered, they will be code 4 (or 9 in U.S.E.) as they are not within the scope of the tax. Why can t the University just recover any VAT it is charged on invoices? Universities are classified as eligible bodies in VAT legislation. For all eligible bodies, the supply of education and vocational training is classified as V.A.T. exempt. Because our main activity is V.A.T. exempt, there is a restriction on the amount of V.A.T. input tax we are able to reclaim. So in general V.A.T. on invoices is not recoverable and is a cost to the University. Compare this to the position for our trading subsidiary, U.S.E Limited. Their main activity is commercial, and most of their transactions are V.A.T. standard-rated. This means in general U.S.E Limited are able to recover the input tax on their invoices. However even though Universities have no general exemption from paying VAT on supplies/services it receives, there are certain supplies made to the University where VAT can be charged at the zero rate. As mentioned earlier, these supplies include some advertising services and certain supplies purchased for medical research. These VAT areas have more detailed rules applicable to Universities; contact Procurement for further information. Please note this applies to supplies/services purchased for the University (company 01) only, not University of Sunderland Enterprises (USE Ltd, company 55). 4

5 What if I decide to purchase goods or services outside the UK? Generally speaking, VAT is payable on all purchases of goods and services that you buy from abroad at the same rate that would apply to the goods or services if supplied in the UK. VAT on goods from European Union (EU) countries If you receive goods from other countries in the EU, technically known as acquisitions rather than imports, you will normally have to account for VAT at the time the goods come into the UK. The rate of VAT payable is the same rate that you would have paid had the goods been supplied to you by a UK supplier. This VAT is known as acquisition tax. Where applicable Planning and Finance will charge the 20% VAT to the account code the original purchase was charged via a manual journal. Please ensure you always provide the supplier with the University s VAT registration number (GB ) in order that the supplier does not charge you their country s VAT also and to notify the supplier that the transaction is a business to business transaction and not an individual purchasing for his/her own personal use. VAT on imports of goods from non-eu countries VAT on imports of goods that you buy from non-eu countries is normally charged at the same rate as if the goods had been supplied in the UK. VAT and import duty is generally paid by the carrier who then invoices the University with the charges. Please ensure the purchase order raised for the carrier quotes the purchase order number relating to the purchase of the original goods as a cross reference. Summary If any GOODS are imported from overseas, the University will incur costs in addition to the purchase price paid to the supplier for the goods. This could include: Freight costs (external) Freight costs (internal) Value added tax Customs duty for bringing the goods to the UK in the UK for bringing the goods from the place of import to the University depending on the country of supply, and the type of goods supplied (this will either be directly payable via the carrier, or a manual adjustment for acquisition tax on the quarterly VAT return by Planning & Finance) depending on the type of goods imported. There are various rates, and some goods are imported free of duty 5

6 Services Received from Outside the UK Certain services received from outside the UK are also subject to the VAT reverse charge provision. The University must pay VAT due at the rate of VAT the supply would attract if supplied in the UK, e.g. services of consultants, electronically supplied services. Where applicable Planning and Finance will charge the 20% VAT to the account code the original purchase was charged via a manual journal. Please ensure you always provide the supplier with the University s VAT registration number (GB ) in order that the supplier does not charge you their country s VAT also and to notify the supplier that the transaction is a business to business transaction and not an individual purchasing for his/her own personal use. Planning & Finance May