School of Oriental and African Studies(SOAS)Revised: February 2012
VAT Guide
This guide is intended to provide an overview and simple guidance on thecommon VAT issues that affect SOAS.
Contents:
- General VAT information
- VAT overview
- VAT at SOAS
- VAT Partial exemption
- Responsibilities and contact details
- VAT on SOAS activities
- Education and ‘closely related’ good/services
- Research
- Conference facilities
- Consultancy
- Library services and publication sales
- Catering
- Donations and sponsorship
- Re-sales
- Supplies made outside of the UK
- Course application administration fees
- Royalties
- Merchandise sales
- VAT on purchases
- Overview
- Zero rating for charitable advertising
- Exemption for purchases connected to a supply of education
- Capital expenditure
- Imports of goods and services to the School from overseas
- Import VAT and EORI Numbers (formerly TURNS)
- University museums that provided free entry to collections
- VAT on Agresso
- General
- Accounts payable
- Accounts receivable
- Non VAT transactions
- Appendices
Appendix I: Glossary of terms
Appendix II: Basic VAT model
Appendix III: Consultancy definition
Appendix IV: Conference VAT Exemption Declaration Template
Appendix V: Zero Rate VAT certificate for Advertising
- General VAT information
1.1.VAT overview
1.1.1.Value Added Tax (VAT) is a tax on consumer expenditure.
1.1.2.Businesses are generally required to add the tax to the value of goods and services that they supply to their customers. This is known as Output tax. When a business suffers VAT on goods and services which it has purchased in furtherance of its own business activities (and therefore relates to the supply of goods and services to its own customers) it is entitled to recover the tax. The tax on purchases is known as Input tax.
1.1.3.As such VAT is designed to be a non-cumulative tax, with the actual tax cost only suffered by the ultimate consumer (as illustrated in Appendix II).
1.1.4.VAT registered businesses submit periodic returns (usually quarterly) to HM Revenue & Customs. Input tax is deducted from Output tax on the return and the balance is paid to or recovered from HM Revenue Customs.
1.1.5.This basic model is complicated by the fact that certain goods and services are specifically exempted from VAT. A business engaged in an exempt activity does not charge VAT to its customers but neither can it recover VAT costs it may have suffered in providing such supplies.
1.1.6.The standard rate for VAT in the UK is 20.0% and applies for most goods and services. The reduced rate (5%) and zero rate (0%) are used for specific types of supply, as defined in law.
1.2.VAT at SOAS
1.2.1.SOAS is a VAT registered organisation.
1.2.2.SOAS is primarily involved in activities that are either exempt from VAT or outside the scope of VAT as they do not represent a business supply. This is because the supply of education by an eligible body (that is basically a non-profit making organisation) is specifically exempt from VAT. Non-business research is outside the scope of VAT.
1.2.3.Those activities which do not meet the definition of relating to a supply of education are however taxable.
1.2.4.The University will generally be charged VAT on the goods and services it purchases, just like any other business. The School’s charitable status only has a very limited impact in reducing the level of input tax suffered.
1.3.VAT Partial exemption
1.3.1.Organisations such as SOAS that provide a mixture of exempt and taxable supplies are subject to VAT Partial Exemption rules.
1.3.2.Partial exemption basically means that the amount of input tax recoverable on purchases that relate to both exempt and taxable supplies (such as general overheads like fuel and power, telephone costs etc) is determined by the ratio of exempt and taxable supplies made by the business. So, for example, if a business made 75% exempt supplies and 25% taxable supplies, it would only be able to recover 25% of the input VAT it had suffered on general expenditure.
1.3.3.Input VAT which directly relates to taxable supplies is fully recoverable by a partially exempt business. Input VAT which directly relates to exempt supplies is fully non recoverable by a partially exempt business.
1.3.4.As SOAS makes mainly exempt supplies it can only recover a very limited amount of the VAT it incurs each year. VAT therefore represents a significant annual cost to the School.
1.4.Responsibilities and contact details
1.4.1.The Finance Department is responsible for advising on the School’s VAT affairs and for liaison with HMRC.
1.4.2.Compliance with VAT requirements is however a School wide responsibility. VAT guidance shouldtherefore be sought on all new areas of activity, particularly if they relate to capital expenditure or new income streams. Early involvement and tax planning are essential in managing the School’s VAT exposure.
1.4.3.The Senior Financial Accountant is responsible for VAT advice and administration in the School. Tax planning and compliance assurance are carried out in partnership with the School’s external tax advisors.
Contact:
Richard LucusSenior Financial Accountant
Email:
Extension:5023
- VAT on SOAS activites
2.1.Education and ‘closely related’ good/services
2.1.1.Education provided by SOAS is exempt from VAT. This is due to the School’s status as an eligible body.
2.1.2.Education in this context includes a course, class or lesson of instruction or study, in any subject, and regardless of where and when it takes place.
2.1.3.It therefore applies to the full scope of educational services provided by the School: SOAS taught summer schools; non credit bearing language courses; specialist tailored briefings; educational aspects of distance learning; as well as the supply of on-campus undergraduate and postgraduate courses.
2.1.4.In addition, the exemption from VAT is extended to goods and services which are ‘closely related’ to the supply of education.
2.1.5.Closely related is defined as being for the direct use of students and necessary for the delivery of education. Closely-related goods and services would include, but not be limited to, accommodation, catering, course materials and field trips.
2.2.Research
2.2.1.The VAT status of research is determined by whether it represents an actual supply to those funding the research and if so, the business status of the funder.
2.2.2.The majority of SOAS research is outside the scope of VAT, and therefore no VAT is chargeable or recoverable.
2.2.3.Research is outside the scope of VAT when no supply is deemed to be made to the research funder. Most commonly this occurs when no unique benefit accrues to the research funder. This will be the case with research sponsored by the Funding Councils who generally fund research for the benefit of everyone.
2.2.4.Research activity carried out by SOAS which is deemed to be a supply is exempt from VAT when provided to another eligible body. In all other cases the supply would generally be standard rated.
2.3.Conference facilities
2.3.1.Conference facilities provided by the School generally represent a combination of room hire and other services such as catering and security. There are separate VAT considerations in each case.
2.3.2.The general rule is:-
Room hire within Brunei gallery or 23/24 Russell Square - taxable at standard rate
Room hire anywhere other than Brunei gallery – exempt
Other services such as IT/AV setup/hire & security– taxable at standard rate
2.3.3.However where the conference facilities are being used by an eligible body as part of a supply of education and are for the direct use of students the whole supply is exempt from VAT.
2.3.4.Customers claiming this exemption must make a declaration that they meet the relevant criteria when making an order. Appendix IV provides a template declaration form.
2.3.5.Room hire in the Brunei Gallery and 23/24 Russell Square are generally subject to VAT as options to tax were exercised on these buildings. There is also an option to tax on the land adjoining 25 – 28 Russell Square.
2.3.6.When SOAS provides a supply of education as part of a conference (either independently or with another organisation) the whole supply becomes an exempt supply of education.
2.4.Consultancy
2.4.1.Consultancy services are taxable at the standard rate.
2.4.2.Consultancy can be basically defined as the supply of professional services to a client for consideration. It is distinct from the School’s primary objects of education and research.
2.4.3.A broad definition of consultancy is included in Appendix III.
2.5.Library services and publication sales
2.5.1.The supply of books and similar printed material are taxable at the zero rate.
2.5.2.Therefore the supply of printed studypacks, books and other publications sold by the School are zero rated outputs.
2.5.3.As an extension of this, income generated by the library which relates to the lending of books is also taxable at the zero rate. This includes fees and income from inter-library lending.
2.5.4.E-books and electronic services (including subscriptions) are standard rated in the UK unlike printed books.
2.5.5.Fines are treated as compensation payments and therefore outside the scope of VAT.
2.5.6.Photocopying charges for students should be treated as VAT exempt as closely related to the supply of Education.
2.5.7.The sale of DVDs are subject to VAT at the standard rate.
2.6.Catering
2.6.1.The supply of catering is generally standard rated for VAT purposes
2.6.2.However the supply of catering to students where closely related to a supply of education is exempt from VAT.
2.6.3.An apportionment between standard rated and exempt sales is therefore made for catering outlets which supply both students and staff / other customers. This is currently a fixed rate applied by Elior based on a survey of actual usage.
2.6.4.VAT is not applicable on the provision of internal catering. This is as Elior are providing catering services as an agent of SOAS. Therefore internal catering does not represent an actual supply (SOAS being effectively both supplier and consumer).
2.7.Donations and sponsorship
2.7.1.Donations and sponsorship will generally be outside the scope of VAT as they do not relate to a supply of goods or services
2.7.2.However if SOAS is obliged to provide a ‘significant’ benefit to a donor a supply will be deemed to have occurred and the funding will be subject to VAT at the standard rate.
2.7.3.The acknowledgement of a genuine donation, such as the naming of a Chair or building, does not constitute a significant benefit.
2.8.Re-sales
2.8.1.SOAS must generally charge VAT on resold goods.
2.8.2.This includes computers purchased on behalf of staff through the School and merchandising sold through the Brunei Gallery shop. On such items the School will recover the relevant input VAT.
2.8.3.The VAT inclusive cost charged to staff members for computer purchases will be taken gross to the computer loan account. SOAS will simply recover and charge the same amount of VAT.
2.9.Supplies made outside of the UK
2.9.1.Determining the VAT status of supplies to customers outside of the UK can be complex. It is therefore advised that guidance is sought from the Finance department on a case by case basis.
2.9.2.It is important to obtain evidence of the business status of the international customer, where the customer is established for business purposes and details of where the service is physically being performed.
2.9.3.The Business to Business (B2B) general rule for supplies of services is that the supply is made where the customer belongs. The Business to Customer (B2C) general rule for supplies of services is that the supply is made where the supplier belongs.
2.10.Course Application Administration Fees
2.10.1.HMRC have ruled that course application fees are standard rated (HMRC letter to SOAS 28/07/2010).
2.11.Royalty Fees
2.11.1.VAT is charged at the standard rate on royalties received by UK businesses. Overseas Royalties from businesses established abroad are subject to the normal B2B place of supply rule and are outside of the scope of UK VAT.
2.11.2.The Senior Financial Accountant reviews royalty income (account code 1420 and 9320 CAT 4 CLAF etc) and declares VAT on the gross amount as the amount has already been received including VAT.
2.11.3.Certain organisations such as Adam Matthew require a VAT invoice before they will transfer royalties to the School.
2.12.Merchandise Sales
2.12.1.The sale of study packs to the book store is zero rated.
2.12.2.The sale of pens or bags to the Students Union or book store is standard rated.
3.VAT on purchases
3.1.Overview
3.1.1.Most goods and services purchased by the School will be subject to VAT.
3.1.2.As SOAS has a very limited ability to recover input VAT it is essential that irrecoverable VAT costs be considered when preparing budgets and costings.
3.2.Zero rating for charitable advertising
3.2.1.There are limited VAT benefits that result from holding charitable status. The most relevant for SOAS is the zero rating of advertising.
3.2.2.Supplies of advertising can be made to the School at the zero rate of VAT. The relief covers both the cost of displaying the advert and the cost of producing it.
3.2.3.There are no restrictions on the purpose of the advertising or the media in which it is placed, however it must use a third party’s time or space. As such costs relating to advertising on the School’s own website would not be eligible for the relief.
3.2.4.The supplier will require a declaration of the School’s eligibility for VAT zero rating. A declaration template, and guidance on completion, should be obtained from the Finance department. An example declaration template is included in Appendix V.
3.3.Exemption for purchases connected to a supply of education
3.3.1.The School’s eligible body status means that certain educationally related purchases should be exempt from VAT.
3.3.2.All examination services, regardless of the status of the organisation providing them, should be exempt
3.3.3.The supply of education or closely related services are exempt from VAT when provided by another eligible body, such as a University.
3.4.Capital expenditure
3.4.1.Capital expenditure refers to the purchase or construction of assets which will be used by the school on an ongoing basis. This includes buildings, internal fixtures and fittings and IT equipment.
3.4.2.The basic principles of partial exemption apply in most cases and the School will be able to recover none or only a limited amount of the input VAT incurred.
3.4.3.There are however special concessions which may apply, particularly with respect to construction and property transactions.
3.5.Imports of goods and services to the School from overseas
3.5.1.The general place of supply rule is that business to business supplies are deemed to take place where the customer is. For imported goods and services from overseas, the School is the customer and so the place of supply is normally in the UK.[1]
3.5.2.Imported goods and services will therefore generally be subject to VAT at the relevant UK rate. This is done to avoid disadvantaging UK suppliers of the same goods and services, and prevent consumer VAT avoidance by sourcing goods and services from countries that do not charge VAT.
3.5.3.The VAT charge will either be made by HMRC at the point of entry to the UK or by the School through the ‘Reverse Charge’, whereby the School effectively chargesitself VAT.
3.5.4.For goods and services it is necessary to consider the potential VAT liability together with the purchase cost quoted by the supplier. For goods imported from outside of the EU, Import Duty costs may also be payable.
3.5.5.For public research grant funded projects, no VAT can be reclaimed from HMRC.For projects where we charge a funder VAT for contract research or consultancy, the full amount of reverse charge VAT may be recoverable from HMRC.
3.5.6.The main imported goods purchased by the School are books and publications. Since books etc are zero rated when supplied in the UK there is no VAT cost to SOAS.
3.5.7.Examples of common areas where reverse charging is necessary:
Overseas student recruitment agency fees.
Overseas consultancy or legal services.
Overseas fees charged by the agent for arranging accommodation and travel.
Overseas research services not provided by an eligible body such as a university or charity. For example, research services purchased from an individual acting for their own profit and effectively self employed, would be subject to a reverse charge. Note that even where an overseas business would be below the VAT registration limit in the UK, a reverse charge would be applicable.
E-books and electronic services (including subscriptions) – these are standard rated in the UK unlike printed books.
There is little or no discretion on the VAT treatment of the items listed as eligible for reverse charge above so it is strongly recommended that VAT at 20% is added to the basic cost of the project or activity where it is intended to recover the costs from a third party (unless of course VAT is chargeable on the service provided to the funder/customer and SOAS is able to reclaim the VAT).
3.5.8.Potential mitigation strategies might include:
Sourcing research services from overseas eligible bodies such as universities and charities.
Identifying where an overseas third party is acting as our agent for purchasing of services and where the nature of the supply is either not normally subject to VAT or belongs for VAT purposes where physically supplied i.e. when a third party is paying for travel on our behalf. This can be treated as a disbursement and no VAT reverse charge would apply. However a third party’s own travel and admin expenses will be subject to a reverse charge, including any costs they incur in the process of delivering the service to the School. Please note that it is not always possible to treat items as disbursements and this depends on the nature of the contract with the third party. Normally there would be a clause identifying items where the third party is acting as agent. Please contact the Senior Financial Accountant for a full list of HMRC’s requirements.
3.5.9.There are some potential exemptions that allow the place of supply to be overseas and not subject to UK VAT. These are listed below in summary but further details are available from the Senior Financial Accountant and HMRC VAT notice 741A.
Supply of services that relate to land or property - the place of supply of those services is where the land itself is located not the customer. Examples of such services include hotel accommodation.
Short-term hiring of means of transport (such as cars) are supplied where the means of transport is put at the disposal of the hiree. The exact meaning of ‘short-term’ is subject to a number of rules found in HMRC VAT notice 741A.