VAT GUIDELINES. Introduction

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1 VAT GUIDELINES F-E.17.6 (a) Introduction These guidelines are not intended as a comprehensive list but to give a brief overview of Value Added Tax (VAT) and how works and applies to the University. VAT legislation is complicated and in many cases open to interpretation by HMRC. Please your queries to the Tax Helpdesk VAT-queries@swansea.ac.uk who will either resolve the query or liaise directly with the University s advisors or HMRC as appropriate. Departments are strongly advised to seek advice on matters as outlined below on any VAT matters of concern, and not to correspond directly with the Office of Customs & Excise. What is VAT? VAT is a tax on consumer expenditure. It is based on individual transactions rather than an overall income or profit. The application of the VAT laws to the University is particularly complex due the wide variety of areas of activity a typical university will undertake. There are three main rates of VAT the standard rate currently at 20%, the reduced rate currently at 5%, and the zero rate. The majority of goods and services have VAT charged at the standard rate. The reduced rate of VAT applies mainly to fuel and power costs, and certain specified construction services. The zero rate applies mainly to children s clothing and books. Exempt Supplies are exempt from VAT altogether. Using the Partial Exemption method, the University can recover a small percentage of VAT incurred on overhead expenditure, i.e. expenditure which relates to both taxable and exempt supplies. The amount recovered is used to reduce the VAT liability. Tuition fees, being a supply of education, means that the fees charged to students are not subject to VAT, i.e. tuition fees are VAT exempt. However, the VAT incurred on the purchase of goods and services which enable the teaching to be carried out cannot be recovered. VAT Registration Number You may be asked for the University s VAT registration number for various reasons. You may need to provide this when you are importing goods or when you are creating a new credit account with a supplier. If you are not sure why the number is being requested find out as much information as you can and contact VAT-queries@swansea.ac.uk for help and advice if you have any concerns. The University s VAT Registration Number is: GB

2 Economic Operator Registration and Identification number You may be asked for the EORI number when importing goods. If you are not sure why the number is being requested find out as much information as you can and contact for help and advice if you have any concerns. The University EORI number is: University Status The University is an Exempt charity ; charities in general have no special VAT arrangements. The University is classified as an Eligible Body under Schedule 9 of the VAT Act 1994, under Note 1(b) of Group 6 (Education) and Note 2A to Group 10 (Sports). The University cannot reclaim VAT for its exempt (educational and some research) activities, which are the majority of the supplies the University makes. This means that the full cost of goods and services (inclusive of VAT) will be applied as a charge to the relevant School or Departmental budget for their expenditure. There are exceptions to this, areas such as taxable research and trading activities such as catering, Taliesin, etc. Income Provision of Education The provision of education is an exempt supply for VAT purposes. This includes tuition fees, short courses, adult education, conferences (please see below) and seminars. It also includes income closely related to education. VAT cannot be reclaimed on expenses relating to the provision of education. Accommodation As Swansea University is classified as an eligible body, the supply of accommodation to our students is considered to be a closely related supply of education and is therefore VAT exempt. This will also apply to visitors who are using the accommodation for education related purposes, for example, on a course. However, when we provide accommodation to visitors where they are not involved in any educational process, for example, holiday lets or overnight stays, then there is no closely related supply of education, so the supply would be standard rated. Staff on Secondment The supply of staff to another Institution for non-teaching purposes is standard rated. If a staff member is supplied to another Institution which is a provider of exempt education, and that member of staff will be used for the direct benefit of the students i.e. teaching, then this will be an exempt supply.

3 Research HMRC defines research as original investigation undertaken in order to gain, advance or expand knowledge and understanding. This does not include consultancy advice, nor does it include education itself, or for example administrative services. The VAT liability of research undertaken by the University will always depend, as a matter of fact, on the precise details of both the funding contract that the University holds the express intention of the parties, and also on the VAT status and location of the sponsor/funder. Please see the specific VAT on Research guide published on the University website (Finance / Staff Information / VAT on Research). Consultancy The supply of consultancy is normally charged at the standard rate of VAT. The University will generally be able to reclaim any VAT incurred on costs. Care must be taken in deciding if a service is research or consultancy. If in any doubt, please contact the Research and Innovation Office. Conferences When deciding what rate of VAT a conference will suffer, we must consider the question of educational content. Where an event is primarily educational in purpose, and delegates are charged for the event, then the fees are exempt from VAT as a supply of education. Where the supply is made in the provision of education as above, any supplies of accommodation or catering by the eligible body organising the conference for those attending the conference are also exempt as supplies incidental to the supply of education. The usual definition of eligible bodies applies (i.e. Schools, Universities, Government Departments, Local Authorities etc.) in this case. Groups which are organizing the conference for educational purposes may still be eligible for VAT exemption, providing that the group cannot distribute its profits, the client is charging for the event, and any surplus from the event will be used to fund further educational events. If any of these criteria are not met, the supply of facilities will be standard rated. If further advice is required, please contact the VAT Helpdesk to discuss the matter further. Where a conference has minimal or no provision for education, the exemption from VAT does not apply. The supply then becomes one of facilities, where some costs will be standard rated and some, such as room hire may be exempt. The Room Hire element of any invoice is normally exempt from VAT but review the room hire VAT guidance below for more details. Any Equipment Hire element will be subject to VAT at the standard rate.

4 Room Hire Room hire is exempt from VAT with no provision of special equipment, facilities, catering etc., as this is classed as a licence to occupy land unless the University has opted to tax the property in which case the room hire will be standard rated. The only buildings the University has currently opted to tax are: Taliesin Arts Centre and the Egypt Centre Institute of Life Sciences (ILS1) Institute of Life Sciences (ILS2) Digital Technium James Callaghan Keir Hardie (North Arts) Institute of Structural Materials (ISM) The hire of a room in one of these buildings would therefore be standard rated. If special facilities are provided in addition to the hire of the room, then the entire charge is subject to VAT at the standard rate. Eg If you grant a licence for someone to use a specific area of office accommodation, such as a bay, room or floor this would be VAT exempt unless you have opted to tax the building. If it s more than a basic room and the room includes additional special facilities and/or equipment etc HMRC may see this as standard rated. If you allow someone access to use office facilities i.e. they can sit anywhere rather than a designated area then this is not a licence to occupy and will automatically be standard rated. If you have any VAT queries for leases or licences, we advise you contact our Tax Helpdesk before the contract is signed. Often a charge will be made to cover additional costs incurred by the University in making the room available such as the management of repairs and maintenance. Such charges can be exempted, as they are simply part of the overall charge for room hire. If equipment is supplied as part of the overall charge for room hire this will also be included in the exemption. Therefore, service charges normally follow the same VAT liability as the room hire under the lease or licence (normally exempt, unless the building has been opted to tax, see above). Please note, not all service charges fall within this so if you have any questions, the Tax Helpdesk. Catering Supplies of catering to students will be VAT exempt. This is because it is considered a closely related supply of education. This will also apply to meals for staff entertaining visitors for educational purposes.

5 Supplies of catering to non-students (i.e. staff) will be vatable (standard rated), as will supplies of catering for retirement functions, leaving parties etc. This is because there is no closely rated supply of education. However where VAT is charged it will be possible to recover the input VAT on any related purchases. All bar sales income is vatable at the standard rate. Sports Facilities If a supply of sports facilities are made to University students, University staff or those of other Higher Education Institutions, then the supply is VAT exempt. A supply of sports facilities to individuals outside the University would also be VAT exempt. If a supply of a single let of sports and physical recreation facilities for a continuous period of over 24 hours to the same person, then this is VAT exempt. However, the person to whom you let the facilities must have exclusive control of them throughout the letting period. If you let out sports and physical recreation facilities for a series of sessions your supply is exempt when you meet all the following conditions: The series consists of 10 or more sessions. Each session is for the same sport or activity. Each session is in the same place, although a different pitch, court or lane, or different number of pitches, courts or lanes is acceptable. The interval between each session is at least 1 day but not more than 14 days. The duration of the sessions may be varied; however there is no exception for intervals greater than 14 days through the closure of the facility for any reason. The series is to be paid for as a whole and there is written evidence to the fact. This must include evidence that payment is to be made in full whether or not the right to use the facility for any specific session is actually exercised. Provision for a refund given by the provider in the event of the unforeseen non-availability of their facility would not affect this condition. The facilities are let out to a school, club, association or an organization representing affiliated clubs or constituent associations, such as a local league. The person to whom the facilities are let has exclusive use of them during the sessions. If an organisation fails to meet any of the above criteria, then the supply of sporting facilities will be standard rated. Photocopying Photocopying charges which relate to students are VAT exempt, as are photocopying charges to staff for departmental work. Providing the charges are incurred for educational purposes, no VAT charge will apply. The Photocopying charges of a complete book will follow the same VAT liability of the original document, therefore a complete photocopy of a reference book would be zero rated.

6 If the photocopying charges relate to private work, then VAT will be charged at the standard rate. Library Any loan or hire charges relating to zero rated books or articles, will also be zero rated. More detailed rules on books and related items can be found by following the link to the HMRC website below:- e&_pagelabel=pagevat_showcontent&id=hmce_cl_000102&propertytype=document Digital Services & Distance Learning Fundamental changes to the VAT accounting treatment for suppliers of Digital Services (broadcasting, telecommunications and wider e-services) came into effect on 1 January 2015 and will impact UK businesses making such supplies to non-business/private individuals ( consumers ) across the EU. The changes mean that the place of supply of digital services provided to consumers will now be taxed according to the location of the consumer rather than the supplier and the impact will be that businesses making such supplies would be required to register for VAT in the consumers member state and charge local VAT. However, as an alternative, suppliers can use a Mini One Stop Shop ( MOSS ) which in the UK is an HMRC online option which will allow businesses to submit a single quarterly return for the local VAT due in other member states. Payment of the VAT will be made through the MOSS system and then passed on by HMRC to the relevant EU Member state. The main areas that are likely to affect Universities are where digitised services are being supplied to EU students such as distance learning, charges for accessing digital books or electronic publications (magazines/journals), digitised examination services. Distance Learning Where distance learning is delivered by a person over the internet or via a webinar to a consumer this isn t considered to be an electronically supplied service and the current place of supply rules will apply i.e. where the educational activities are undertaken (ie UK). However if the distance learning is fully automated and does not involve any human intervention then this will be considered to be a digital service and the new place of supply rules will apply. Examination Services The place of supply of examination services will also depend on whether or not they involve human intervention. If an exam paper is submitted online but is marked by an assessor this is not a digital service and the place of supply will remain where the service is performed.

7 However if an online exam is automatically checked and scored by a computer this will be a digital service and the place of supply will be the consumer s place of establishment. If a university does identify that it is potentially required to account for VAT in another EU member state then consideration will then need to be given on whether any VAT exemptions similar to those applying in the UK to supplies of education also apply in the EU. We would recommend that this is an area that is carefully reviewed and any digital supplies to EU consumers identified and the potential VAT implications considered. Online business is an area of huge growth potential and although currently there may be human intervention in supplies of distance learning by Universities this is constantly evolving and may become more automated in future. Our advice would be to ensure that these areas are carefully monitored. Miscellaneous Income Car parking charges are vatable at the standard rate. Clamping charges are VAT exempt. Vending machine income is normally standard rated. Expenditure Imported Goods And Services When the University purchases goods and services from outside the UK, these transactions are subject to the Reverse Charge mechanism. The Reverse Charge mechanism is designed to prevent businesses from avoiding VAT by obtaining goods and services from abroad. What this means is that the goods or services purchased from overseas do not have VAT added. The University is required to provide our VAT number to the company supplying the goods or service. The University, as the purchaser, is required to calculate the VAT element of the transaction and pay this over to the HMRC, and their VAT charge is added to the cost of the goods or services. Goods imported from outside the EU usually have the VAT and any other relevant import duty or tax collected at Customs before being let into the UK, therefore it is not necessary to charge any VAT. Services imported from outside the EU are subject to VAT. Goods and services imported from the EU will be subject to the reverse charge mechanism. All transactions involving imports are examined by the finance department and any VAT due is charged to the same code as the original transaction by journal. If you intend purchasing goods or services from outside the UK, and are unsure about any relevant VAT implications, please contact the Tax Helpdesk.

8 Advertising VAT Relief on Advertising As the University has Charity status, it does not need to pay VAT on its advertising, providing certain conditions are met. The conditions for the relief to apply are: The advertising must communicate to the general public. This would include advertising media such as television, cinema, newspapers, magazines or websites which are accessible to the public. (Direct mail shots and telesales would not qualify as these are targeting specific individuals). The University must be paying to advertise in someone else's media, e.g. an external publication or website. Advertising on our own website would not apply, neither would advertising on exhibition stands, or advertising on commemorate items such as pens or adult clothing. The supplier is entitled to ask the University for evidence that it qualifies for the relief. If this is the case, you need to send the completed form F - E c Charity Advertising to the supplier. Advertising expenditure meeting the above criteria is zero-rated and therefore no VAT is payable. For more details on VAT relief on advertising, follow the link below to the HMRC website:- e&_pagelabel=pagevat_showcontent&id=hmce_cl_000123&propertytype=document Equipment for Medical Research Zero-rating of medical equipment In order for the zero rating of medical equipment to apply, the following criteria must ALL apply:- The goods and services must be purchased by the University; The supply is must be of qualifying goods or services, or the repair of qualifying goods or services; If the supply is of medical, scientific, computer, video, sterilising, laboratory, or refrigeration equipment, this equipment is being purchased to be used by the University mainly for medical or veterinary research, training, diagnosis or treatment; The University must provide the supplier with a certificate of eligibility for relief. Explanation of qualifying goods and services The legislation lists the following seven types of equipment as qualifying for relief provided that the other criteria above are also satisfied;

9 Medical Equipment - This covers a wide range of goods, from simple items like bandages and tongue depressors, to complex machinery such as x-ray machines and scanners. Scientific Equipment - equipment designed to perform a scientific function. This includes precision measuring equipment and analytical equipment such as thermometers, weighing machines and spectrometers. Computer Equipment This covers computer hardware, peripherals (monitors, printers and scanners), and in certain circumstances software. Video Equipment This covers Video Recorders, Cameras, DVD players and other recording/playback devices. Sterilising Equipment This includes autoclaves and other specialised equipment using steam or other high temperature processes. Laboratory Equipment This includes equipment that is designed for use in a laboratory, such as test tubes and other laboratory glassware; Bunsen burners; fume cupboards; micro tomes; cryostats; laboratory benches; specialised sinks and catch pots This does not apply to general furniture used in a lab, bulk materials, or consumables. Refrigeration Equipment - This includes all cooling and freezing equipment, whether designed for industrial, domestic or any other purpose. As mentioned earlier, this relief also applies to the repair, maintenance or installation of qualifying goods, and any goods supplied in connection with this repair, maintenance or installation. The relief also extends to parts and accessories for use in or with any of the above equipment. The HMRC provides an extensive list of various equipment which does and does not qualify under these criteria. The link to this document is provided below. What is equipment? Equipment is articles designed or used for a specific purpose. It will usually be durable, although certain disposable items, such as syringes that are designed to be used once only, may still be equipment. The following items are not equipment and do not qualify for zero-rating, even when supplied to, or for donation to, an eligible body: bulk materials such as liquids, powders, sheets, pellets, granules; clothing (other than specialist medical equipment such as surgical masks, gowns and gloves); and

10 consumables such as chemical reagents, fuel, ink, medicines, oil, paper, and cleaning and sterilising fluids. Please note however, medicines and chemical reagents may qualify for zero-rating under a separate relief when supplied to certain charities. Further information can be found under Drugs and Chemicals and Medicinal Products (see below). When purchasing equipment which meets the criteria described above, you need to send the completed form F -E a: VAT Exemption: Medical to the supplier. For more details on VAT relief Equipment for Medical Research, follow the link below to the HMRC website:- e&_pagelabel=pagevat_showcontent&id=hmce_cl_000131&propertytype=document Drugs and chemicals A charity engaged in medical or veterinary research can purchase substances directly used for testing, or for mixing with other substances in the course of that research, at the zero rate. A substance can be natural or artificial, and can be in solid or liquid form or in the form of a gas or vapour. If the substance is purchased in the form of gas the zero-rating will also apply to the cylinder rental. Medicinal products A charity engaged in the treatment or care of people or animals, or in medical or veterinary research, can purchase medicinal products at the zero rate. A medicinal product is a substance presented as a medicine, or an ingredient for a medicine, capable of being administered to people or animals for a medicinal purpose. The zero rate covers medicinal products purchased by a charity for the purpose of testing the efficiency of those products. Medicinal purpose means: treating or preventing disease; diagnosing disease, or ascertaining the existence or degree of a physiological condition; contraception; inducing anaesthesia; otherwise preventing or interfering with the normal operation of a physiological function, whether permanently or temporarily, and whether by terminating, reducing or postponing, or increasing or accelerating the operation of that function, or in any other way.

11 For more details on Drugs and Chemicals, and on Medical Products, follow the link below to the HMRC website:-