LONDON BOROUGH OF CROYDONFINANCE HANDBOOK
VAT Guide for Schools
Applicable to:Nursery, Primary, Secondary, SpecialSchools and Pupil Referral Units
Date Issued:10November 1999.
Effective Dates:From 10 November 1999 until further notice.
Supercedes:VAT guide for Schools issued in August 1995
To be read by:Head Teacher
Finance Person
To be available to:Chair of Governors
Finance Governor
Other Staff and Governors as required
Summary:
- The purpose of this guide is to assist schools in the correct treatment of Value Added Tax (VAT). The guide is intended as a general overview covering the main points affecting schools.
- HM. Customs and Excise do not accept "mistakes" as a reasonable excuse for the incorrect treatment of VAT, and are empowered to impose financial penalties. Penalties incurred by individual schools will be charged to those school budgets.
- Appendix A contains a glossary of terms used when dealing with VAT.
Contacts:
VAT legal requirements
Helpline020 7951 5666
School processing of VAT
Nursery Primary & Secondary schools
Special schools & pupil referral units:-
Financial Services to Schools020 8760 5610
CONTENTS
Section No.
1.Schools Status Under VAT Legislation1.1
2.Treatment of VAT on Expenditure2.1
-Introduction2.1
-Information Required on Tax Invoices2.3
-VAT Sponsorship Scheme2.10
-Private Funds2.12
-Business Entertaining and Hospitality2.14
3.Treatment of VAT on Income3.1
-Introduction3.1
-Organised School Visits3.4
-Catering3.6
-Kitchen Lettings3.14
-Vending Machines3.15
-Special Functions - Outside Caterers3.18
-Examination Fees3.19
-Supply of Education Materials to Pupils3.21
-Second-hand Sales3.24
4.Letting of Facilities4.1
-Non-Sporting/Non-Recreational Activities4.2
-Sporting/Recreational Activities4.4
5.School Photographs5.1
6.Supply of Music Tuition and Musical Instruments6.1
7. Goods and Supplies Received from the EC7.1
8.Goods and Supplies to and from other Local Authorities8.1
9. Sponsorships and Donations9.1
10.Voluntary Aided & FoundationSchools10.1
Appendix A -Glossary of Terms
Appendix B -Verification of a VAT Registration No
1.SCHOOLS STATUS UNDER VAT LEGISLATION
1.1Schools are treated as being part of the Council for VAT purposes, and as such, are included in Croydon's registration. Croydon is registered as it makes taxable supplies and is subject to the same rules as any other traders on its business activities (Appendix A). Croydon's VAT registration number is 218 5912 55.
1.2The provision of education by a LEA school is termed non-business where it is provided free of charge or for a fee less than cost.
1.3Croydon schools are included within Croydon's VAT registration, and so goods and services supplied to them by other Council departments are not subject to VAT.
1.4Privately funded schools are separate legal entities and are therefore not included within Croydon's VAT registration. The purpose of these notes is to offer guidance to schools under the control of the LEA i.e. Foundation, Voluntary and Community schools as well as Nursery and Pupil Referral Units.
2.TREATMENT OF VAT ON EXPENDITURE
INTRODUCTION
2.1Input Tax (Appendix A) incurred by schools can be reclaimed, providing there is a tax invoice (see paragraphs 2.3 - 2.6) and the expenditure is incurred in the name of the school or the London Borough of Croydon. This applies to all purchases, whether paid for via the school's chequebook system, the petty cash account or paid centrally. If the invoice is incorrect, no VAT can be reclaimed. If the supplier is registered for VAT, a proper VAT invoice can be demanded. If one is not forthcoming, contact Financial Services, as there may be a problem with the supplier's registration.
2.2Where an invoice to support a petty cash or expenses claim contains items other than those being claimed, the VAT on the items to be reimbursed may still be recovered. In such circumstances the amount of VAT attributable to the items to be reimbursed should be calculated using the VAT fraction (Appendix A). The amount claimed must be noted on the invoice, which must form part of the claim.
INFORMATION REQUIRED ON TAX INVOICES
2.3VAT can only be reclaimed if a tax invoice has been obtained as a receipt. The following information must be included on a tax invoice: -
a)An identifying number;
b)Date of the supply (this is the tax point);
c)The name, address and registration number of the supplier;
d)The name and address of the person to whom the goods or services are supplied (this must be in one of either the name and address of the London Borough of Croydon, the school, the Head Teacher or another authorised person;
e)The type of supply e.g. sale, hire, exchange etc.;
f)A description that identifies the goods or services supplied;
g)For each description, the quantity of goods or extent of the services, the rate of tax and amount payable, excluding tax, expressed in sterling;
h)The gross amount payable, excluding tax, expressed in sterling;
i)The rate of any cash discount offered;
j)The amount of tax chargeable at each rate (expressed in sterling) with the rate to which it relates;
k)The total amount of tax chargeable expressed in sterling.
Where an invoice details goods or services that are exempt or zero-rated in addition to standard rated supplies, the amounts for each category must be detailed and totalled separately.
2.4Where the supplier is a retailer (only) and the value of the supply is less than £100, a simplified tax invoice is acceptable. The following information must appear on the invoice:
a)The name, address and registration number of the retailer;
b)The date of supply;
c)A description that identifies the goods or services supplied;
d)The total amount payable including tax;
e)The rate of tax in force at the time of supply.
The invoice must include only supplies subject to the same rate of tax (i.e. all standard rated or all zero-rated or all exempt). Where the value of the supply exceeds £100, a full tax invoice must be obtained from the supplier.
2.5For certain items costing less than £25, a tax invoice is not required from a supplier (registered for VAT) providing the supply is, and only is: -
a)Telephone calls from public or private telephones;
b)Purchases through coin-operated machines;
c)Car Park charges (on streetcar parking is not subject to VAT).
2.6In the event of credit cards being used, any amount over £100 still requires a full tax invoice. However, for amounts below £100, it is acceptable for the sales voucher to act as a less detailed tax invoice, providing it contains the following information
a)The name, address and registration number of the retailer;
b)The date of supply;
c)A description that identifies the goods or services supplied;
d)The total amount payable including tax;
e)The rate of tax in force at the time of supply.
It should be stressed, however, that the use of a credit card slip should only be used in the event of a proper tax invoice not being obtainable.
2.7VAT can only be reclaimed from Customs and Excise on one of the preceding forms of invoice. Where any other document is used, Customs and Excise will claim the amount back from the school (via Croydon's VAT return) together with an interest charge.
2.8If there is any reason to doubt the validity of the tax invoice, contact Financial Services. Examples of invoices that may be invalid are those that charge VAT but have no registration number, the registration number itself is invalid (see Appendix B for method of checking validity of registration numbers) or a taxable supply made by a registered supplier, but no VAT is charged. There is a duty to check doubtful invoices, as Customs and Excise have taken action against traders who do not challenge invoices that are obviously doubtful.
2.9Under no circumstances must invoices be altered. If there is a need for credit, a credit note must be obtained from the supplier. This will not only adjust the net amount for the goods, but also account correctly for the VAT liability.
VAT SPONSORSHIP SCHEME
2.10Private Funds (i.e. voluntary funds, not funding delegated or devolved from the LEA which are LEA public funds) can make purchases net of VAT providing it purchases the item under the following conditions. The type of purchase is not restricted, PROVIDING IT RELATES TO NON-BUSINESS ACTIVITIES ONLY. This means items relating to the general education curriculum. It can be anything from petrol, which is a consumable item, to an item of gymnastic equipment, which is more permanent. The method of payment and funding must be clearly shown in each case: -
a)The purchase is planned and authorised prior to actual purchase;
b)The school places the order from the delegated budget, receives the supply and holds a tax invoice in the name of the school or Croydon;
c)The LEA public fund pays the invoice direct. The private fund then reimburses the LEA public fund with the net amount;
d)Ownership of the asset remains with the London Borough of Croydon, which uses it for its own non-business purposes, although the LEA will not remove the asset from the school;
e)The school keeps adequate records to identify the purchase and the purpose for which the supply was bought.
2.11IT IS THE RESPONSIBILITY OF THE SCHOOL TO ENSURE THAT ITS RECORDS CLEARLY SHOW HOW THE PURCHASE WAS MADE. It should also be noted that should a private fund purchase items direct using this scheme, Customs and Excise will make an assessment to recover reclaimed input tax, and make an interest charge.
PRIVATE FUNDS
2.12Private funds are not part of Croydon's VAT registration. For VAT purposes, each fund is treated as a separate individual entity, even though the fund may have a number of separate bank accounts. If the value of the taxable supplies made by the private fund exceeds the annual VAT registration limit (currently £51,000), then it must register for VAT. If there is any likelihood that this figure will be exceeded, then the school fund administrator should contact Financial Services as soon as possible.
2.13Unless the private fund is separately VAT registered, VAT incurred on purchases made through the private fund cannot be recovered.
BUSINESS ENTERTAINING AND HOSPITALITY
2.14No input tax can be reclaimed for any business entertaining and hospitality expenses.
3.TREATMENT OF VAT ON INCOME
INTRODUCTION
3.1Most income received by schools is classified as non-business and therefore carries no VAT liability. However, there are a number of sources of income, e.g. private telephone calls, private photocopying, sale of certain goods, where VAT needs to be accounted for.
3.2Income collected by schools must be banked as soon as possible. In addition, it is essential that schools in the cheque book scheme send the School Finance System VAT returns to the Accountancy Section of CSL monthly, so that the VAT can be accounted for in the correct month. Delays in inputting the data to the Financial Information System (FIS) can result in the monthly VAT return being inaccurate, leading to penalties by Customs and Excise. IT IS ESSENTIAL THAT THESE RETURNS ARE SUBMITTED ON TIME.
3.3Where income is collected inclusive of VAT, the amount of the VAT is calculated by multiplying the gross amount by the VAT Fraction (Appendix A).
ORGANISED SCHOOL VISITS
3.4Where visits, trips and holidays are organised for educational purposes they are outside the scope of VAT. There is no definition of what constitutes an “educational” visit, but generally any visit, trip or holiday which can be seen to have an educational purpose can be included. Educational visits can be financed using the VAT Sponsorship Scheme.
3.5Where a visit, trip or holiday is organised which is not considered educational, the VAT treatment will depend on a number of factors. If such circumstances arise, contact Financial Services for further assistance.
CATERING
3.6The treatment of VAT on school catering varies depending on who supplies the food and to whom.
Catering to pupils/students - catering provided by the school acting as principal either using the DSO or a third party contractor, acting as agent. (See Appendix A)
3.7All supplies of food are non-business; including those items of food, which are normally, standard rated, but are supplied as part of a meal in dining accommodation.
Catering to staff/adult visitors - catering provided by the school acting as principal either using the DSO or a third party contractor, acting as agent. (See Appendix A)
Standard school meal
3.8The general rule regarding staff and adult visitor income for meals is that VAT is due on all transactions. The following paragraphs clarify specific areas of catering that may occur.
3.9With the introduction of the cafeteria system of school meals in secondary schools, Custom and Excise granted a concession whereby meals supplied to staff and visitors could be treated as non-business, providing the meals were supplied from outlets catering mainly for students and where there was no means of readily identifying meals for staff and visitors at the point of sale.
3.10From 1 September 1997, this concession was withdrawn because Customs and Excise identified that the schools using this concession normally have till facilities that enable staff and visitors to be identified.
3.11Where a free meal is provided to staff, then there are no VAT implications. If teachers are charged for the meal, VAT must be accounted for on the income received from the teacher even where this is less than the cost of the meal.
All catering provided by a third party contractor acting as principal
3.12If a third party contractor provides meals as principal, the income from the sale of the meals will belong to the contractor. As the contractor is not the education provider, all meals will be subject to VAT, whether supplied to pupils, teachers or visitors.
3.13In these circumstances, it is usual for the contractor to pay for the use of the premises. This payment is regarded as rent, and is exempt from VAT.
OTHER CATERING PROVISION
Kitchen lettings
3.14When schools let their kitchens for private functions, where an outside organisation wishes to hire the kitchen, these are one-off lets, and VAT must be charged and accounted for.
Vending machines
3.15There is no VAT on income received where the vending machine is used to help provide meals to pupils and students, PROVIDING the machine is situated in the dining room usually used by the pupils and students.
3.16If the machine is situated elsewhere then VAT must be accounted for on all income.
3.17There are occasions where a dining room may be used for adult evening classes or other such activities. Although the income collected during the school day may be non-business, the income collected in the evening is fully VATable, and arrangements must be made to either account for the VAT separately, or apportion the amounts if one daily collection from the machine is made.
Special functions - outside caterers
3.18For all non educational special functions, which by their nature, tend to be one-off events, where the catering is provided by an outside caterer i.e. private company, charges made for food must include VAT at the standard rate. This applies whether the school is banking the income direct, or whether the catering firm is banking the income and paying the school a management fee. In both cases, the income (money collected by school/management fee) is inclusive of VAT at the standard rate, and the school must account for it on their analysis returns.
EXAMINATION FEES
3.19As examinations are considered to be part of the provision of education, any fees charged are exempt from VAT when supplied on a non-profit making basis.
3.20Examinations not provided in the normal provision of education e.g. cycling proficiency tests, are not subject to VAT.
SUPPLY OF EDUCATION MATERIALS TO PUPILS
3.21"Education Materials" are defined as items such as pens, inks, exercise books, materials used in craft classes, musical instruments etc. The items sold must be used in the classroom for a reasonable amount of the class time in order for the sale of these items to be made without VAT. They must also be part of the provision of education and sold direct to pupils in class. This, thus, excludes materials sold in school shops, where goods are standard rated, plus any goods which are likely to be exclusively used at the pupil’s home. Specifically excluded is computer equipment of all kinds i.e. hardware and software. Customs have also suggested excluding drum kits, pianos, digital (electronic) pianos, rack mounted recording equipment and public address equipment. However, if it can be clearly demonstrated the items are being used in the classroom, contact Financial Services for further advice.
3.22It should be noted that the exemption from VAT also includes the following provisos: -
a)the charge made does not exceed the cost;
b)the goods do not comprise sports equipment or clothing;
c)the goods are to be used in conjunction with the teaching of the normal school curriculum.
3.23The supply of any goods to pupils which are not included in the above paragraphs, are regarded as business supplies and VAT must be charged at the standard rate.
SECOND HAND SALES
3.24All second hand items that are offered for sale are subject to the same rate of VAT as if they were new. For example, disposal of old office furniture and equipment are the most common items that fall in this category, and would be subject to VAT at the standard rate. If the item was a book then the rate of VAT would be zero.