Charities breakfast briefing

Transcription

1 Charities breakfast briefing VAT common problem areas and an update on recent developments 16 March 2012

2 What we are going to cover? Common problem areas Liability of supplies Partial exemption standard method de-minimis input VAT annual adjustment special methods capital items Business and non-business apportionment

3 What we are going to cover? Grant funding Charity reliefs Property issues Place of supply rules Recent developments Penalty regime Cost sharing exemption Questions and answers

4 Overview of the VAT system VAT is a tax on consumer spending VAT registered businesses charge VAT on sales the consumer will pay the business the full sales price (including VAT) the business will remit the VAT amount to HMRC The final consumer will bear the cost of VAT

5 Overview of the VAT system VAT is paid over to HMRC on a regular basis Normally quarterly VAT collected is called Output VAT VAT paid on costs is referred to as Input VAT A VAT registered business will only pay the difference to HMRC Tax Payable = Output Tax Input Tax

6 Liability of supply Supply Taxable Exempt Outside the scope of VAT Schedule 9 VATA 1994 Standard Rate 20% Lower Rate 5% Zero Rate 0% Schedule 8 VATA 1994

7 Method of determining liability 1. Schedule 8 Zero rated 2. Schedule 9 Exempt 3. Lower Rate Specific 4. Outside the scope Specific 5. Standard rated Zero rating takes priority over exemption

8 Exemptions Schedule 9, VATA 1994 provides a list of exempt items: Group 1 Group 5 Group 6 Group 7 Group 9 Group 10 Group 12 Group 13 Land Finance Education Health and welfare Trade unions and professional bodies Sport, sports competitions and physical education Fund-raising events by charities and other qualifying bodies Cultural services etc

9 Partial exemption - overview XYZ is partially exempt as some of its turnover is standard rated and some is exempt Input Tax Taxable Turnover 100,000 15,000 25,000 Exempt Turnover 398,000 60,000? Inputs are recoverable to the extent that they relate to a taxable supply (sale) Need to apportion residual input tax of 25,000 between taxable and exempt supplies to determine recoverability

10 Partial exemption standard method Input Tax Taxable Turnover 100,000 Exempt Turnover 398,000 15,000 25,000 60,000 The standard method of apportionment is: Taxable supplies (excluding VAT) Total supplies (excluding VAT) This fraction should be expressed as a % and rounded up to the next whole number The percentage should then be applied to the residual input VAT When calculating this fraction you should exclude supplies of land, capital goods or self supplies. You should aim to have a fraction reflecting normal trading activities and anything strange should be excluded

11 Partial exemption standard method Input Tax Taxable Turnover 100,000 Exempt Turnover 398,000 15,000 25,000 60,000 For example 100,000 x 100 = 21% 100, ,000 Round up from 20.08%

12 Partial exemption standard method Input Tax Taxable Turnover 100,000 Exempt Turnover 398,000 15,000 25,000 60,000 21% 79% = 5,250 = 19,750 The inputs that relate to taxable supplies are recoverable The inputs that relate to exempt supplies are irrecoverable

13 Partial exemption de-minimis input VAT It is possible to reclaim the input VAT relating to exempt supplies if the amounts involved are below a certain limit. To be de-minimis the total exempt input tax must be less than or equal to: Example 625 per month on average, and 50% of total input tax. Must be both! Quarter to 31 December Taxable supplies 100,000 Exempt supplies 19,000 Input tax Directly attributable to taxable supplies 7,000 Directly attributable to exempt supplies 1,300 Residual input tax 2,000 The input tax recoverable is?

14 Partial exemption de-minimis input VAT Quarter to 30 June Taxable supplies 100,000 Exempt supplies 19, /119 X 100 = 85% Input tax Directly attributable to taxable supplies 7,000 Directly attributable to exempt supplies 1,300 Residual 2,000 1,700 T.S. 300 E.S. The charity can recover 10,300 Total exempt inputs of 1,600 are below 625 per month ( 1,875 per quarter) and are less than half of total inputs ( 10,300/2 = 5,150)

15 Partial exemption annual adjustment Partial exemption calculations are performed every quarter input tax is therefore reclaimed on a quarterly basis These calculations are not final At the end of the VAT year the charity must perform an annual calculation using annual supplies and annual input tax figures the de-minimis is then applied on an annual basis The charity should calculate the correct reclaim for the year based on these figures this will then be compared to the quarterly reclaims and any difference is known as the annual adjustment

16 Partial exemption special methods Standard method applies by default Charity can agree a special method with Customs Methods can be based on: number of transactions floor area staff numbers inputs time Once a special method has been agreed with Customs, the charity must apply the method until both parties agree it is no longer appropriate Approval or direction of special methods must be in writing Fairer apportionment of residual VAT

17 Introduction to business/non-business Charity not carrying on a business Not liable to account for VAT on its income VAT incurred on expenditure not recoverable Key planning strategy find a taxable transaction Input tax related to taxable supplies all VAT recoverable Input tax related to non-business activities no VAT recoverable Residual input VAT partially recoverable according to business/non-business apportionment formula ( fair and reasonable basis)

18 Other problem areas Grant funding grant v contract fact not choice potential lost funding Property issues subletting zero-rated construction/property non-business: relevant residential Place of supply rules reverse charge

19 Charity reliefs Zero-rated supplies by charities: Sale of donated goods Export of goods

20 Charity reliefs (continued) Zero-rated supplies to charities: Talking books for the blind Loan of radios/cassette players to certain charities Aids for the disabled for personal use Specially designed equipment Donated goods Lifeboats & associated goods/services Advertising to the public

21 Charity reliefs (continued) Zero-rated supplies to charities (cont.): Goods used in collections Medicinal products Medical/veterinary research materials Certain property & construction services Charity funded equipment for medical/veterinary use. Relevant goods ; supplied to an eligible body ; purchase funded by charitable/voluntary donations.

22 Charity reliefs (continued) Exempt supplies by charities: Fund raising events Welfare services and associated goods Reduced rate (5%): Supplies of welfare advice & information by charities Supplies of fuel/power to charities for residential/non-business use

23 Charity reliefs (continued) Other reliefs: VAT-free importation for goods/spare parts destined for the needy; disaster relief; donated goods for physically/mentally handicapped VAT refund for non-business charitable use self-build

24 Recent developments Penalty regime Single regime for all taxes Compliance spectrum innocent to guilty Penalty system based on behaviour

25 Recent developments - Penalty regime 4 types of penalties: careless inaccuracy 30% deliberate but not concealed inaccuracy 70% deliberate and concealed inaccuracy 100% neglect penalty 30% Potential lost revenue

26 Recent developments - Penalty regime More than one inaccuracy Offset over-declarations/under-declarations Mitigation reduction for disclosure careless up to zero penalty deliberate but not concealed minimum 20% penalty deliberate and concealed minimum 30% penalty Error correction notifications (voluntary disclosures) lower than 10,000 between 10,000 and 50,000 but does not exceed 1% of box 6

27 Recent developments - Cost sharing exemption EU law since 1977 Not adopted in the UK as previously perceived to be too difficult, now pressure from the EU to adopt Economy of scale and staff costs Cost Sharing Group (CSG): SPV with no direct control Services directly necessary for exempt/non-business activity Minimum level of exempt/non-business activity 2012

28 Questions and answers Bob Jones Indirect tax partner DDI: Luigi Lungarella Indirect tax manager DDI:

29 This seminar and the accompanying handouts cover topics only in general terms and are intended to give a wide audience an outline understanding of issues relating to accounting applicable to entities in general, and therefore cannot be relied upon to cover specific situations; applications of the principles would depend on the particular circumstances involved. Furthermore, responses given in the seminar to questions are only based on an outline understanding of the facts and circumstances of the cases and therefore do not form an appropriate substitute for considered specific advice tailored to your circumstances. We recommend that you obtain professional advice before acting, or refraining from acting, on any of the contents. We would be pleased to advise you on the application of the principles demonstrated at the seminar, or on any other matters, to your specific circumstances, but in the absence of such specific advice, we cannot be responsible or held liable. Littlejohn