Basic VAT for Orderers and others. Andy Jamieson VAT Manager. 26 May 2011

Transcription

1 Basic VAT for Orderers and others Andy Jamieson VAT Manager 26 May 2011

2 VAT Basics 2 Agenda Basic principles & coding On-line orders Medical VAT relief (exemption) Buying from EU/ or R.O.W Internal trade VAT Group HMRC powers Income Imports Duty 11/04/2011 The University of Sheffield / Department of Marketing and Communications

3 Why VAT matters VAT is a major cost to the University > 11m/ year typically BUT We are periodically audited by HMRC So we have to ensure that we stay within the legal framework which exists. HMRC have wide-ranging powers to audit any trader at any time without prior warning. HMRC officers have greater powers than the police to enter premises and conduct searches. 11/04/2011 The University of Sheffield / Department of Marketing and Communications

4 Basic VAT - Rates of VAT 4 Q1. Will VAT be charged on the purchase? Standard rate 20% (most items) Reduced rate 5% Taxable supplies (Fuel & power, change of building types, + others) Zero rate 0% (Books, newspapers, some disabled alterations + limited others) VAT exempt (Education, leases, hire of rooms without the Option to Tax ) Outside the Scope (statutory payments, rates, MOT tests, etc) 11/04/2011 The University of Sheffield / Department of Marketing and Communications

5 Your starter for 10 5 Jaffa cakes Plain digestives Chocolate digestives Tea/ coffee Cappuccino from City View For staff For students Pringles Trees Apple trees Sports drinks 10/01/2011 The University of Sheffield / Department of Marketing and Communications

6 Purchases from UK suppliers What you need to know as an Orderer OR to help Orderers Q2. If VAT is chargeable - what are we using the purchase for? 10/01/2011 The University of Sheffield / Department of Marketing and Communications

7 How the VAT system works Producer P sells raw materials to M for VAT ( 20) Manufacturer VAT Payment 20 HMRC Collects ( 60 in total) 20 from P, M and C0 from R Payment 120 VAT Payment 40 VAT Claim 20 VAT Claim 40 Payment 240 M reclaims VAT charged by P and sells finished goods to R for VAT ( 240) Consumer VAT Payment 60 R reclaims VAT charged by M and sells finished goods to C for VAT ( 60) Payment 360 Retailer 11/04/2011 The University of Sheffield / Department of Marketing and Communications

8 How the VAT system works in the University Suppliers Provide goods & services to UoS + VAT* * Note that as a charity we can sometimes claim special relief from VAT University UoS may or may not have a customer and therefore may or may not charge VAT to the customer Commercial Body Or RCUK When we don t charge VAT to our customer, we generally can t reclaim the VAT on our related costs from HMRC 10/01/2011 The University of Sheffield / Department of Marketing and Communications

9 How the VAT system works in the University 9 Quarterly VAT returns (Oct/Jan/April/July) We pay HMRC the difference between: and VAT due on sales VAT reclaimable on purchases We usually pay HMRC each quarter. Often between 0.5m to 750k / quarter. 25/05/2011 The University of Sheffield / Department of Marketing and Communications

10 University purchase with VAT on it exempt use / non-business use (M3) Retailer R sells raw materials to Uni for VAT ( 20) University VAT Payment 20 HMRC Collects 20 from retailer and we reclaim nothing! Payment 120 Payment 120 Uni used the goods for teaching only full VAT cost as teaching is exempt activity cost to dept is 120 Cost to Dept /01/2011 The University of Sheffield / Department of Marketing and Communications

11 University purchase with VAT on it mixed use M4 Retailer R sells raw materials to Uni for VAT ( 20) University VAT Payment 20 HMRC Collects 20 from Retailer and repays Uni 2.10 Payment 120 VAT Payment 2.10 Uni used the goods for teaching and in commercial research part VAT cost as mixed used activity cost to dept is still x 10.5% = 2.10 A/C Tax Suspense 11/04/2011 The University of Sheffield / Department of Marketing and Communications

12 University purchase with VAT on it taxable use M2 Retailer R sells raw materials to Uni for VAT ( 20) University VAT Payment 20 HMRC Collect 20 from Retailer and repays Uni 20 VAT neutral for us VAT Payment 20 VAT Payment 20 Uni uses the goods only in commercial research VAT fully recoverable from HMRC. Cost to dept is 100 Dept. Cost 100 Code M2 10/01/2011 The University of Sheffield / Department of Marketing and Communications

13 VAT Basics ubase codes 13 M0 no VAT on purchase (not VAT registered, VAT exempt or zero rated) M1 Medical research goods M2 Fully recoverable M3 Non-recoverable M4 Partly recoverable M6/M7/M8 for reduced rates 07/09/2011 The University of Sheffield / Department of Marketing and Communications

14 Purchases from UK suppliers Q1. Will VAT be charged on the purchase? VAT is not chargeable on the following (Use Tax code M0 ); Books, leaflets and paper journals (VAT is chargeable on stationery, electronic journals, questionnaires and posters) Education provided by a HEI, FE College or school and most charities ( education includes academic conferences and similar events) Most cold food (e.g. groceries, sandwiches) but not hot food and nothing supplied in a café/restaurant Passenger transport (Flight and train tickets, coach hire) but not taxis or car hire and not the travel agent s fees As a charity we can claim VAT exemption for the following Lab, computer and scientific equipment for use in medical research (Use Tax Code M1 which prints a declaration on the purchase order claiming the relief) Advertising services (Use M0 but ask the Tax Section for a special certificate to issue to the supplier)

15 The trouble with Travel & Accommodation 15 Booking direct Travelling by public transport is zero rated (M0) (Buses, Trains, but also coaches and flying) Hotels in UK will charge VAT (M2/M3/M4) Hotels in EU will charge local foreign VAT (XX) Hotels in R.O.W will charge local foreign VAT (XX) Travel Agents (Co-op / STA, etc) Will charge UK VAT on their Admin/ Service fee if the main charge has UK VAT tax codes match those above. Except for hotels: Hotels in UK AND EU will charge UK VAT (M2/M3/M4) on their fees (even though EU hotel won t charge UK VAT) Hotels in R.O.W will charge no UK VAT (M0) 29/09/2010 The University of Sheffield / Department of Marketing and Communications

16 VAT relief Qualifying equipment for medical use Must be equipment (i.e. goods); Must be medical, scientific, computer, video, sterilising, refrigeration or laboratory; OR Parts or accessories for such equipment; Must be used for medical or veterinary diagnosis, research, treatment or teaching; Relief covers maintenance and repair and supply on hire; Relief covers installation ONLY if inc in normal selling price Must not be purchased for RESALE 07/09/2011 The University of Sheffield / Department of Marketing and Communications

17 VAT relief 17 What is medical equipment? equipment which is required for the practice of medicine Includes: X-ray machines, Forceps, Scalpels, Anaesthetic apparatus, CT Scanners, Dentists chairs, Drills, Spittoons, Patient trolleys, Swabs, Suture needles, etc What is scientific equipment? equipment used for observation, experimentation and measurement such as microscopes, thermometers and precision weighing machines, X-ray machines 07/09/2011 The University of Sheffield / Department of Marketing and Communications

18 VAT relief quiz 18 VAT relief yes or no? Autoclave Glassware Plasticware Single use syringes Pipettes Nitrile gloves Toner cartridges Autoclave bags Sterilising fluids Ethanol Laptop Software for laptop 11/04/2011 The University of Sheffield / Department of Marketing and Communications

19 R1 new code 19 This is to be used like M1 when qualifying goods are bought for medical research, only from the EU Under the old codes Y0 was used but this also covered items which did not require certification. The new code is part of our risk management improvements to demonstrate we are using the medical relief with reasonable care A recent review we conducted highlighted about 4% of M1 coded PO s were wrong, thankfully 50% of these were zero rated for other reasons, but that still leaves 2% incorrect 2% equates to around 200k or 40k VAT relief to which we are not entitled. We could be due a penalty of 30% of this first time round but if we repeat it could rise to 70%, which would be recharged to persistent offenders.! 10/01/2011 The University of Sheffield / Department of Marketing and Communications

20 On-line Orders 20 Many more purchases are being made via websites and this will continue to grow. Two key points: 1)In order to claim any VAT from HMRC we need a suitable VAT invoice from the vendor 2)If asking for VAT exemption for medical goods we must ensure the vendor is aware 29/09/2010 The University of Sheffield / Department of Marketing and Communications

21 VAT Basics what can we claim? 21 Firstly we need a VAT invoice Two types of VAT invoice: Standard; and Less detailed (< 250) retailers invoices If it states pro-forma or request for payment or similar it is not a VAT invoice even if it contains all the details of one, but states these terms. 07/09/2011 The University of Sheffield / Department of Marketing and Communications

22 What should a VAT invoice have on it? 22 Full VAT invoice Less detailed Invoice number yes Time of supply (tax point) yes yes Date of issue of invoice yes Name & Address of vendor yes yes VAT number yes yes Name & address of purchaser yes Description of goods yes Quantity, rate of VAT & VAT amount yes Unit price yes Gross amount payable, excluding VAT yes Rate of any discount yes Total amount of VAT in sterling yes Total amount payable including VAT yes For each rate of VAT payable gross amount including VAT and VAT rate applicable yes 07/09/2011 The University of Sheffield / Department of Marketing and Communications

23 Corporate Cards/ P-Cards 23 These need coding according to the same principles as normal purchases. However, based on experience, we are less likely to have VAT invoices enabling us to claim. If you don t have a VAT invoice then we can t claim the VAT. If we re buying on line then a VAT invoice may well be sent with the goods, but the receipt we print out may not constitute a VAT invoice 11/04/2011 The University of Sheffield / Department of Marketing and Communications

24 Anomalies where s it coming from??? 24 Foreign vendor but UK branch, etc What is important is where are the goods coming from rather than where are we paying. Classic example - Apple The finance office is in Ireland, but the goods are delivered from the UK. So although we correspond with another EU Member State the supply is in the UK so UK VAT is added. Who else? Sony, Elsevier, Lonza, Microsoft,... 11/04/2010 The University of Sheffield / Department of Marketing and Communications

25 Purchases from UK suppliers Q2. What are we using the purchase for? If VAT is chargeable we have to decide whether we can reclaim the VAT from HM Revenue & Customs in whole, in part or not at all. The Rule If we are using the purchase wholly for taxable purposes then we can reclaim the VAT on the purchase in full (Use VAT code M2 ); If we are using the purchase wholly for non-taxable purposes then we can t reclaim any VAT at all (Use VAT code M3 ); If we are using the purchase for mixed purposes then we can reclaim part of the VAT (Use VAT code M4 ). We use the Tax Code to identify which is the case.

26 What do we mean by taxable purposes Any of the following; Commercial research contracts (inc. KTP projects) Consultancy contracts Testing and analytical services Any other activities where we charge VAT to the client By concession on European Framework 5/6 contracts NOT Framework 7 contracts Use Tax code M2 for VATable expenditure being purchased solely for use in these activities.

27 What do we mean by non-taxable purposes Any of the following; Teaching activities including academic conferences, short courses and seminars; Non-commercial research including research funded by; Research councils (MRC, EPSRC, MRC, AHRC, PPARC, etc) Framework 7 Charity funded research Health service & local authority funded research EU government funded research (other than Framework 5/6) Most UK government funded research (but check with the PI or Research Finance or the Tax Section if unsure) In-house research (i.e. unfunded research) Use Tax Code M3 for VATable expenditure being purchased solely for use in these activities

28 What do we mean by mixed use Either of the following; A purchase to be used for both taxable and non-taxable activities; For example, a purchase of a piece of equipment which will be used both for carrying out commercial testing of materials for paying clients (taxable use) and for teaching undergraduate students (non-taxable use) General overhead expenditure; For example, the purchase of a new computer and office equipment for the departmental office Use Tax Code M4 for VATable expenditure being purchased in such circumstances

29 VAT Basics - attribution 29 VAT Taxable eg Commercial projects (AMRC, etc) M2 Residual Eg Overheads Repairs Maintenance Most Fuel & power Stores purchases M4 Exempt/ Non-business Eg Education or Research facility only eg AWEC M3 07/09/2011 The University of Sheffield / Department of Marketing and Communications

30 Purchase from EU supplier - no VAT on it mixed use R4 Supplier The seller supplies microscope to Uni for 2.4m University HMRC Collect 400,000 from the Uni and repays Uni 42,000 in same VAT return Payment 2.4m VAT Payment 42k VAT Payment 400k PO shows no VAT, but needs to be coded Dept. uses the microscope for commercial research & ERDF research ubase calculates the UK VAT here part VAT cost as mixed used activity cost to dept is still 2.4m A/C Tax Suspense 400k x 10.5% = 42k We reverse charge the VAT 10/01/2011 The University of Sheffield / Department of Marketing and Communications

31 Purchase from USA no VAT on it mixed use R9 Supplier Supplier sells microscope to Uni for $3m Uni. A/C Tax Suspense HMRC Collect 400,000 from the Uni at entry to UK (and possibly duty) and repays Uni 42,000 on VAT return Payment $3m VAT Payment 400k ubase records net sum only. Tax department associate import VAT and duty to Dept, unless agents contact Dept directly VAT Payment 42k 400k x 10.5% = 42k Dept. uses the microscope for commercial research & ERDF research projects part VAT cost as mixed used activity cost to dept is still 2.35m 10/01/2011 The University of Sheffield / Department of Marketing and Communications

32 Non-UK purchases Goods from outside EU (e.g. USA, Far East, Norway, Switzerland) Use Tax Code R9 no VAT chargeable by supplier or selfchargeable by University but VAT may be payable at the port of entry to the UK. This is typically paid by the freight agent which then sends a separate invoice to us for this. Goods from inside EU (e.g. France, Germany, Spain) Supplier willnot charge local VAT if we provide them with our VAT number (GB ) but we have to self-charge UK VAT, if the same purchase would be VATable in the UK; Use: R0 if the same purchase in the UK wouldn t suffer VAT (e.g. books) R1 if VAT medical research relief would apply in the UK R2 if VAT would be chargeable in the UK but would be fully recoverable R3 if VAT would be chargeable in the UK but would be non-recoverable R4 if VAT would be chargeable in the UK but would be part-recoverable

33 Non-UK purchases Services from outside the UK (1) Tax treatment is determined by where the supplies are used. Services considered to be used outside the UK would include; Travel services such as train/plane travel and car hire Hotel accommodation and subsistence Conference services For all such services use Tax Code XX as the services are outside the scope of UK VAT (local VAT or similar taxes may be charged). 11/04/2011 The University of Sheffield / Department of Marketing and Communications

34 Non-UK purchases Services from outside the UK (2) Tax treatment is determined by where the supplies are used. Most services are treated as being used back in the UK even when supplied from elsewhere in the world. Examples cover; Consultancy/Legal services/written translation services License and Copyright fees Provision of information (e.g. electronic database access) All such services are treated similarly to goods where, on provision of our VAT number (GB ), the supplier doesn t charge local VAT, but we self-charge UK and then reclaim it if entitled. Use R5 if VAT would be chargeable in the UK but would be fully recoverable R6 if VAT would be chargeable in the UK but would be non-recoverable R7 if VAT would be chargeable in the UK but would be part-recoverable 10/01/2011 The University of Sheffield / Department of Marketing and Communications

35 Services from outside the UK 35 Buying in foreign currency Does this mean no VAT payable? No! You simply apply the same tax codes as appropriate: R5 / R6 / R7 And ubase does the rest for you Last year we had to repay 75k to HMRC which we had coded as no VAT because it was bought in foreign currency 11/04/2011 The University of Sheffield / Department of Marketing and Communications

36 VAT coding in ubase Tax Codes Required for all external orders (and internal orders) Enable anyone looking at the transaction to identify whether or not VAT has been charged (e.g. HM Revenue & Customs, auditors, funders) and how we dealt with it in the University Tells Tax Section whether VAT is reclaimable or not (so I can produce the VAT return for the University) Tells supplier when we are claiming VAT relief Do NOT mix tax code M1 with any other tax codes on the same PO 9 times out of 10 this results in the vendor sending us an incorrect invoice which is subsequently parked and unnecessary delays incurred

37 37 Internal trade For VAT purposes those entities in the VAT Group are treated as a single legal person. This means that internal charges do not attract VAT Eg. If you buy catering from ACS there is no VAT charge This also applies if you supply University departments, eg CiCs The tax code for internal trade is XA for purchases and ZA for sales This does not mean you can reclaim VAT on purchases bought for internal trade the same process should be gone through in terms of which code to use (M2/M3/M4) 07/09/2011 The University of Sheffield / Department of Marketing and Communications

38 VAT group 38 The University SUEL SYES Ltd Escafeld Ltd Risk2Value Ltd Epi Genesys Ltd AMRC (Manufacturing) Ltd (Use code XX for purchases and code ZZ for income) Not in the VAT group The Students Union 07/09/2011 The University of Sheffield / Department of Marketing and Communications

39 HMRC powers 39 The rumours are true that HMRC have some powers greater than the Police! However what is important to us is what happens when we get the VAT (or other tax) treatment wrong. The starting point is pay the VAT due, plus interest if the customer could not reclaim the VAT, plus a penalty. The new penalty system which covers all taxes starts at 30% of the tax that is underpaid if the mistake is careless. If it is deliberate then it ranges between 30% and 70%. If we took reasonable care in managing our affairs then it may be possible to mitigate down to 0%. 07/09/2011 The University of Sheffield / Department of Marketing and Communications

40 The University s income can be: VAT Exempt (Z0) Income cash and on-line store Education (fees from students and closely related income) Research for another eligible body Outside the scope of VAT (ZZ) Grant funded work (Research Councils/ Charities) principally where the funder receives nothing in return for the money Taxable standard rate (Z8) Consultancy (UK) Research for commercial companies Taxable zero rate (Z7) Consultancy for overseas entities Research for overseas companies 40 07/09/2011 The University of Sheffield / Department of Marketing and Communications

41 Income Generating sales invoices - Material codes Material codes generate the correct VAT treatment Eg Consultancy The system will look at the customer set up to determine where they are located. If in UK (Z8) standard rate VAT will be charged If in EU (Z7) and we have an EU VAT number then no VAT charged and the customer reverse charges If o/s EU (Z7) then no VAT charged 41 29/09/2010 The University of Sheffield / Department of Marketing and Communications

42 Income - Material codes 42 Testing & Analytical Services From 1 January the place of supply has changed. This means that such services (900016) will be treated the same a consultancy. So if you have EU customers no VAT will be charged if an EU VAT number is in the customer set up Testing and Analytical services could be VAT exempt when supplied to another eligible body for its students direct use 11/04/2011 The University of Sheffield / Department of Marketing and Communications

43 Income 43 Particular income streams: EU Framework funding Fr 5 and Fr 6 zero rated. We charge no VAT but can reclaim VAT from HMRC Fr 7 outside the scope of VAT. We charge no VAT but can reclaim no VAT from HMRC. We also cannot reclaim the VAT from the EU... CASE studentships We treat these as a supply of services to the sponsor and charge VAT to them 07/09/2011 The University of Sheffield / Department of Marketing and Communications

44 Income 44 Collaboration agreements These are usually where two or more parties have signed up to carry out work under one grant funded contract The parties are named on the contract The grant is outside the scope of VAT as is any distribution of income by the project lead Where a party which is not named on the contract supplies services it may be subject to VAT though HMRC are reviewing this 07/09/2011 The University of Sheffield / Department of Marketing and Communications

45 Imports/ exports 45 Imports Where goods come through import agents/ couriers they ask if VAT exemption is applicable If not we are charged import VAT and until this is paid the goods are not released by Customs Imports are only goods from o/s the EU Exports Temporary export of goods Outward Processing Relief where equipment goes for repair Returned Goods Relief where equipment is taken o/s the EU to be involved in research, etc and returned in same state 07/09/2011 The University of Sheffield / Department of Marketing and Communications

46 Customs Duty 46 This is chargeable on some equipment only when coming from o/s EU VAT is charged on top of Customs Duty Duty can range from 1% to >80% (generally 2% to 10% range) It is not reclaimable from HMRC (unlike VAT) However we can gain exemption from duty if it is : scientific equipment; and it is being used solely for non-commercial (eg grant funded work RCUK, etc) or educational purposes (teaching) We can get VAT & duty exemption if it is for medical research as well 07/09/2011 The University of Sheffield / Department of Marketing and Communications

47 VAT Basics - January More information is available at; uspace: Contacts and advice; Taxation Services Section Room 203 Brunswick Street tax@sheffield.ac.uk Andy Jamieson (University VAT Manager) ex21518 a.jamieson@sheffield.ac.uk Deborah Damment (University Group Tax Manager) ex21508 d.damment@sheffield.ac.uk Joanne Lilly (Tax Officer) ex21517 (Mat leave from until mid-sept 11) j.l.lilly@sheffield.ac.uk Emma Reynolds (Tax Officer) ex21517 e.j.reynolds@sheffield.ac.uk 07/09/2011 The University of Sheffield / Department of Marketing and Communications