care & repair cymru: vat- what you really need to know cardiff – 19 sept 2012 liz maher

Care & Repair Cymru:VAT- What you really need to knowCardiff – 19 Sept 2012

Liz Maher

The Team

(C) Centurion VAT Specialists Ltd 20122

Conversation Topics

– Why being a Charity doesn’t take you outside the scope of VAT– What you can buy in VAT Free or Reduced Rated– Delivering Welfare services in the VAT context– Grants v Contracts: When do you make supplies for VAT purposes?– Cost Sharing VAT exemption: A new VAT relief for shared services – is

it right for you?


What is VAT?

• VAT is a tax on transactions undertaken in the course of business– Goods– Services

• Accounting for VAT on income: – right amount of tax declared at the right time

• Can I recover the VAT I am charged by suppliers?– Right to recover VAT on costs– Evidence to support recovery


VAT Treatments:

Business Activities:• Taxable:

– Standard (20%)– Reduced (5%)– Zero (0%)

• Exempt

Non Business Activities:• No VAT charged on income• No VAT recovery on costs supporting non business income areas


Charities

Can a charity makes business supplies for VAT purposes?


VAT context of a social enterprise company• Is it making supplies by way of business?• Does it have charitable status?• Tax Case: Furniture Finders of Winsford Ltd


Business and Non-business


Example

What sort of business supplies could a charity make• Rent out office space or function rooms• Selling goods• Membership charges• Selling or leasing buildings and land• Selling tickets to a fund raising event such as a dinner/concert• Sponsorship income• Advertising income• Delivering vocational training/education for a charge• Being paid to provide welfare advice or welfare services• Seconding staff• Shared services recharges


Non Business Income

• Grants• Donations• Legacies


Business/Non Business

• Benefits and disadvantages• Benefits include:-

– VAT relief on building costs– Reduced rate fuel– Charity reliefs

• Disadvantages include:-– Substantial loss of VAT– Administrative burden


VAT Reliefs

• What to take advantage of as a Charity• Delivering Welfare Services when you’re not a charity


Special Reliefs for supplies by Charities

Z/R R/R Exempt

Sale of Donated Goods X

Fundraising Events X

Welfare Services X

Welfare Advice X X

Sporting Services X

Cultural Services X

Education & Vocational Training

X


Advertising Income X X

Welfare Advice: Reduced Rate• Effective from 1 July 2006• Supplies by a charity or state regulated private welfare agency or

institution• Advice relates to mental or physical welfare of elderly, sick distressed, or

disabled persons (home safety).• Not goods unless they convey the advice ( CD’s with information in).• Advice provided solely to an individual for their own benefit is VAT

Exempt.• Free welfare advice is a non business activity.


Mobility Aids for the Elderly: Reduced rate• Effective from 1 July 2007• Services of installing “mobility aids”• Supply of “mobility aids” by person installing them.• Used in domestic accommodation by a person aged 60 or

over at time of supply• Not goods alone; repairs or replacements once installed;

installed in care homes or similar.


Special reliefs for Purchases by Charities• Construction of new building for non-business use by a

charity or use as a village hall or similar• Certain work on protected buildings (Budget 2012 changes)• Certain aids and adaptations for disabled or chronically sick

people• Drugs for use in medical treatment or research• Certain vehicles adapted for the carrying of wheelchairs or

stretchers


Special reliefs for Purchases by Charities cont.• Advertising and goods connected with collecting donations• Equipment for medical use e.g. for donation to an NHS

hospital• Fuel and power for qualifying use• Supply and installation of energy saving materials (reduced

rate to be removed on RCP building in Finance Bill 2013)• Sea rescue equipment• Equipment for producing talking books and newspapers


Fundraising Activities

• Grants • Donations• Legacies• Sponsored events and charity challenges• Raffles, prize draws etc• Affinity credit cards


Relevant Charitable Purpose (RCP)

• Supply of a building to a charity that is used otherwise in the course or furtherance of a business is zero rated.

• Zero rating applies to all of a building or part of a building

• All or part of the building must be used solely for non-business purposes

• Charity must issue a certificate to the building contractor


Relevant Charitable Purpose (RCP)• Zero rating can go back 4 years

– consider existing buildings to see if there is scope for recovery– But need to consider original funding & if there are any pay back clauses

• Plan for new build to maximise cash flow• Zero rating also applies to certain disability works

– Purpose built access such as ramps or lifts (chair/stair)– Disabled toilets– Certificate required


Other Reduced Rated items

• Energy Saving areas• Domestic fuel

Grants v’s Contracts


When is a Grant not a Grant

• Is the payment freely given?• Does it entitle the giver to any benefit or right?

– Council appoints charity to run one of the council’s homeless shelters and gives them £50,000.

– Charity works with homeless people in the city. City Council gives it £50,000 to support the charities activities.

– Charity receives monies from ESFund to support its provision of basic skills experience to those furthest from employment.

– Free advice provided by charity to the public in return for grant from local authority.


A donation or not a donation

• Three Counties Dog Rescue Charity: new owners have to pay a set donation of £120 towards costs?

• Tron Theatre Ltd: for a donation of £150 towards the costs of refurbishing the theatre and received minimal benefits?

• Charity supports distressed authors and receives a bequest of royalties from the executors of a literary estate?


Aberdeen Sports Village Ltd

• ASV a JVC between Aberdeen City Council & Aberdeen University• ASV assessed for £352,472 on funding received from ACC & AU• Annual Grant Funding:

– Was there a supply of services by ASV to ACC & AU?– If there was a supply of services, what was the consideration?– If there was a consideration, what was it’s nature? Was it a donation

or was there a direct link between the payer and the recipient sufficient to incur a liability to VAT?


VAT Cost Sharing Exemption


Principles of the Legislation

• Used by a wide variety of sectors– Charities, Universities, FE Colleges, Housing Associations, Residential

Care Homes, Banks, Insurance Companies

• Straightforward to operate, minimising compliance & admin• Does not create opportunities for abuse or avoidance• No standard EU implementation: each State different

methods• Some EU States facing infraction proceedings


CSG Model: Supplies


Staff costsStaff costs

Other costsOther costs

29

Key Conditions:

• HMRC’s definition of an “independent group of persons”• All members must carry on exempt or non business activities• HMRC’s definition of “ directly necessary” supplies• Direct re imbursement of costs condition• Distortion of competition condition


General Provisions:

• Applies only to qualifying services which are directly necessary for the exempt/non business activities of qualifying members

• Does not cover goods unless ancillary• CSG can include overseas members• A CSG could be a charity if it qualifies• If a public body is a member it will have to consider whether the

EU Procurement Directive applies to its purchases from the CSG


CSG Model: Legal Structure


Independent Group:

• Established, owned by members for their co operative benefit• Can be equally controlled• One or more members may have control• All must have a legal interest• Min 2 members no maximum• No shares held by some one not a member


Independent Group cont:

• Legal form choice of members;– For profit partnership – exemption applies to qualifying supplies– Limited partnerships – all partners limited & general must qualify– Unincorporated Associations

• Care when recruiting members – distortion of competition issue• Use to which members put the services must be verified by CSG• All members must receive Group 16 supplies• 12 month rules on membership if supplies cease to be made to a member


Exempt and/or Non business

• All members must have exempt and/or non business activities• Qualifying Membership Test:

– 5% or more exempt/non business in immediate 12 months prior to joining or,

– Last completed Partial Exemption/non business year or,– Clear intention to receive and does receive qualifying services in next

12 months from date of joining and,• Supplies are used directly within 12 months of receipt by member

for 5% or more exempt / non business onward supplies


Exempt and/or Non business con’t:• Do not have to be VAT registered to join but must meet

qualifying membership test or intend to within 12 months of joining


Directly Necessary Services:

• Directly Attributable rule applies• Mixed use services will not qualify• Simplification rule:

– Negligible level of taxable supplies = less than 15% taxable activities– Past or intention to meet in next 12 months rule– All supplies received from CSG will be exempt

• Practical application based on Return data/ Partial Exemption/ Business/non business calculations

• If “intention to meet” in next 12 months fails (only allowed to look forward once)• Sectorisation possible to meet 15% rule


Direct Re imbursement

• No margin added to establish recharge cost to secure exemption• Reimbursement of costs includes:

– Cash payments/liabilities– Costs incurred but not invoiced (accruals)– Amounts to meet future anticipated expenditure– Depreciation in value of CSG assets– Charge to build capital fund to purchase an asset

• Care regarding recharges for management services• Interaction with Transfer Pricing regulations


Distortion of Competition

• A CSG is a cooperative self supply not an outsourcing arrangement

• Should be no competition in a marketplace• If all conditions are met there should be no distortion of

competition issue• Must have no “characteristics of an independent operator

seeking a customer base in order to generate profits”


If you’d like to continue the conversation drop in to our stand for more chat!

Liz MaherAndrea Brindley

Julie Rawlinson-Smith


care & repair cymru: vat- what you really need to know cardiff – 19 sept 2012 liz maher

Documents

vat reliefs

vat purposes

vat recovery

vat free

vat treatments

scope of vat

new vat relief

cost sharing vat exemption