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VAT Guidance Notes VAT Guidance Notes

Value Added Tax (VAT) is a tax on consumer spending and applies to most supplies of goods and services.  In order to be subject to VAT the supplies must be:

supplies made in the United Kingdom (UK) or the Isle of Man.

AND

by a taxable person.  (The University is registered for VAT)

AND    

in the course of furtherance of business.  For VAT purposes business means any continuing activity which is mainly concerned with making supplies to other persons for a consideration.

AND    

are not specifically exempted

We can approach this in the opposite way and say that supplies are outside the scope of VAT if they are:

made by someone who is not a taxable person.

OR      

made outside the UK or the Isle of Man.  (N.B.  Some supplies to overseas customers may be deemed to have been made in the UK)

OR      

not made in the course or furtherance of business.  Non business activities include providing free services and publicising religious/political views where no consideration is given.  (Please note however that many apparently 'free' supplies are given in the expectation of attracting students or external customers who will eventually pay and there is therefore a business supply).

Where VAT is charged by a supplier (that is its Output Tax) it is able to reclaim the VAT charged to it (that is its Input Tax) subject to certain rules.

There are three rates of VAT:

Standard Rate = 20%

Reduced Rate = 5% (on domestic fuel and power)

Zero Rate = 0%

Supplies can also be exempt from VAT where no tax is payable.

The University

The law governing VAT in the UK is generally regarded as being the VAT Act 1994 (as amended) but there are also European Community directives which have an influence, notably the Sixth VAT Directive (1977).

As far as the University is concerned the majority of the supplies that it makes are supplies which are exempt from VAT under Schedule 9, Group 6 of the VAT Act 1994.  This applies to all supplies of Education and Vocational Training as well as supplies of Research when made to another "eligible body".

In consequence if any VAT is charged to the University on supplies used for achieving the above that VAT is not recoverable.

However, if the University makes a supply which is not covered by the above (or any other) exemption it will be subject to VAT at one of the three rates.

In these circumstances the University will be able to recover any VAT charged to it on supplies used for making the above.

If the University cannot identify the use to which any supply is put it is a mixed use supply.  The University is able to recover a proportion of this VAT.

It is therefore most important that you are aware of the type of supply being made when raising orders or coding invoices so that you can identify whether or not VAT is recoverable.

Definitions

Unfortunately there is no definition in law of either Education or Research.

Education 

Education can be taken to cover any course of instruction or study in any subject provided by the University.  It covers lectures, seminars, conferences and symposia.  But beware admission charges to events like plays concerts and exhibitions are subject to VAT.

Research

Research means original investigation undertaken in order to gain knowledge and understanding.  It does not cover routine testing and analysis or the giving of consultancy advice.

Vocational Training 

This definition covers:

training or retraining; and
work experience; for:

  1. paid employment; or
  2. voluntary employment in areas beneficial to the community as a whole - education, health, safety, welfare and charity work in general.

Eligible Bodies

The following list is not exhaustive (overseas bodies cannot fall into this definition)

  • Schools, Universities or Colleges (within the meaning of the Education Acts)
  • Local Authorities
  • Government Departments or Executive Agencies
  • Non profit making bodies that carry out duties of an essentially public nature similar to those carried out by a local authority or government department
  • Health Authorities
  • Non profit making organisations that meet certain conditions (precluded from distributing any profits and apply their profits in a particular way) - this covers most Charities.

VAT Indicators - Orders & Payment Certification

For on line orders the VAT indicator box (VAT CODE) on the purchase order screen will either be blank or the correct default VAT indicator will be displayed.  Please enter or amend as necessary to the required VAT indicator.  If the order is zero rated from VAT then the indicator must be set to 'PZ'.  When attaching an invoice to the order the VAT indicator can be amended.

For payment certification labels/stamps the correct VAT indicator box needs to be completed.

VAT indicators are as follows:

  • VAT Indicator PZ (no VAT charged) - this will relate to supplies that are zero rated, or outside the scope of VAT.
  • VAT Indicator FR - VAT Fully Recoverable.
  • VAT Indicator NR - VAT Mpm Recoverable.
  • VAT Indicator PR - VAT Partially Recoverable. 

Example 1 (UK Supplier)

We purchase six microscopes which will be used for different purposes as follows:

Use VAT Indicator
Used for research project for BP VAT recoverable (FR)
Used for research project for EPSRC VAT irrecoverable (NR)
Used for Teaching Laboratory VAT irrecoverable (NR)
Used for General Research Laboratory VAT mixed use (PR)
Kept unused in stores VAT mixed use (PR)
Used for Medical Research project (zero rate certificate given with order) No VAT charged (PM)

The immediate intended use is the deciding factor.  Changes in future use only apply to land and buildings over £250,000 and computer equipment over £50,000.

If you have difficulty in identifying the use of the item purchased then the account code may help or ask the person who requested the order.

If you are still unsure please contact either the Senior Financial Accountant (Rhoda Wolf, ext 3780, e-mail r.wolf@uea.ac.uk) or the Financial Accountant (Cameron Starling, ext 1695, email cameron.starling@uea.ac.uk) for advice.

Example 2 (Overseas Supplier)

Any tax charged on the invoice will not be UK VAT and cannot be recovered through the UK VAT system.  The VAT indicator should therefore be set at 'PZ'.  However, if there is an EC tax charge on the invoice which you can identify as fully recoverable (and the tax is of sufficient value) then there is a method of recovery through that other country's tax authority - please refer to the Rhoda Wolf or Cameron Starling for further information.

Please note that where goods are purchased from overseas Duty and VAT may be charged at the port of entry.  Any VAT so charged is UK VAT and normal rules apply.

Example 3 (Payment Voucher)

If you have no order or invoice and you use a PAYMENT VOUCHER and you include VAT then exactly the same rules apply.  However, in addition if you identify VAT as either mixed use or recoverable in full then we must hold proper evidence - please ensure that you obtain a VAT receipt or formal VAT invoice.

Special Cases - Expenditure

Zero - Rate Certificates

In certain circumstances it is possible to obtain relief from standard rated VAT by giving a zero rate declaration with the order (see under FORMS).  The types of supply covered are:

  1. Charity Advertising - as the University is a charity all advertisements placed by UEA qualify for zero rating.  The relief also covers external design and production costs.
  2. Medical and Scientific Equipment - used for medical research or training
  3. Medicinal Products used SOLELY for medical research
  4. Disabled adaptations (where they comply with specific rules)

Closely Related Supplies

The supply of any goods or services which are closely related to the exempt supply of education are also exempt provided that:

the goods or services are for the direct use of the pupil, student or trainee receiving the principal supply;

and

where the supply is to the eligible body making the principal supply it is made by another eligible body.

Therefore if we purchase items for student educational use from another eligible body and identify the direct student use when ordering, these supplies will be exempt from VAT.

EC Acquisitions

These rules apply if you acquire GOODS from European Union countries.  We are required to quote the University's VAT number (GB 595 1835 05) when placing the order.  The effect of this is that the supplier country's VAT will not be charged and the supply will be zero rated - however VAT at the UK rate will be chargeable instead.  In some cases this is an advantage eg publications are zero rated in the UK but are subject to 7% VAT in Germany.

EU Countries - Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden (& UK)

Outside the Scope supplies

If supplies being made by the University are regarded as Outside the Scope of UK VAT, provided those supplies would be taxable supplies if they were made in the UK, then any related Input VAT charged can still be recovered.  For example although VAT is not charged on EC research contracts any input VAT is recoverable.

Imports

There are a number of special cases where VAT and/or Import Duty are either not chargeable or are at a reduced level provided the appropriate documentation is completed.

  1. Goods for testing are free of Import Duty and VAT if the goods are completely used up or destroyed in the course of testing with 12 months.
  2. Some Biological and Chemical substances used for research are free of Import Duty and VAT.  This applies to substances not available in the EC (there is a specific list published by the DTI).
  3. Free of Charge items require a charge (reasonable) for customs and VAT purposes.  If a nil value is quoted an open market valuation will be made.
  4. All scientific instruments used for non-commercial scientific research or educational use are free of Import Duty although relief from VAT only applies to use for medical research or training.

International Services

If you purchase services from overseas (eg copyright/software licences, information, consultancy services) there may be a liability to pay UK VAT under the Reverse Charge rules.  The identification of any such supplies is carried out in the Finance Division.

Expenses claims

Expenses claims do not have separate identification of VAT.  This is to simplify completion of the forms.  As most travel expenses are zero rated and VAT on business entertainment expenses is not recoverable then most expenses will not include VAT that can be recovered.  In those few cases where you are able to recover VAT this should be indicated by note on the expense claim.

Special Cases - Income

Closely Related Supplies

The supply of any goods or services which are closely related to the exempt supply of education are also exempt provided that:

the goods or services are for the direct use of the pupil, student or trainee receiving the principal supply;

and

where the supply is to the eligible body making the principal supply, it is made by another eligible body.

Therefore most supplies we make to our own or other institutions students will be exempt from VAT.

Sales of second hand equipment are not always subject to VAT.  If, when the goods were originally purchased, no VAT was recovered then, on disposal, the sale is exempt from VAT.

Research and Other Contracts VAT liability is identified on the RGN2/CN2 notification which is circulated once the contract is accepted.

Sponsorship/Donations - please be aware there is a clear distinction in VAT terms between these two.  Donations are outside the scope of VAT whereas sponsorship is subject to VAT.  Some supplies may include both elements and may need to be apportioned.

Supplies of services to overseas customers are not always outside the scope of UK VAT.  There are special rules for the supply of services which in some circumstances may be deemed to have been made in the UK and therefore subject to VAT.

Because of the complexity of VAT the above is only a brief introduction to VAT.  If you require further information or guidance on any specific matter please contact either the Head of Financial Accounting (Rhoda Wolf, ext. 3780, e-mail: r.wolf@uea.ac.uk) or the Financial Accountant (Manuela Moxon, ext 1695, email manuela.moxon@uea.ac.uk) for advice.

Forms (Zero Rate Certificates)

Charity Advertising Declaration (VAT 1)

Eligible Equipment Certificate (VAT 2)

Eligible Equipment Certificate - Software (VAT 3)

Medicinal Products Certificate (VAT 4) 

VAT Guidance for Research Projects VAT Guidance for Research Projects

The normal rules regarding recovery of VAT on Research Projects are as follows:

  1. Projects classified as R1, R2 or R3 (ie funded by UK Research Councils, UK Charities and UK Government Departments) are treated as non business and Input VAT is irrecoverable - use VAT Indicator FR.
  2. Projects classified as R4 (ie funded by commercial companies) are treated as taxable business and Input VAT is recoverable - use VAT Indicator Code 3.
  3. Projects classified as R5, R6 and R7 (ie funded by EC and Overseas Sources) have a right to recovery in certain circumstances.  Each agreement needs to be reviewed in order to decide upon the appropriate VAT Indicator Code to be used.
  4. Projects classified as R8 (ie funded by other sources) are treated as exempt business and Input VAT is irrecoverable - use VAT Indicator Code NR.

Where students are involved in Research Projects and they are not paid as research assistants for that involvement the position is as follows:-

  1. Research Postgraduates - HMRC accept that these students merely act as research assistants and do not receive a supply of education whilst so doing.  The VAT rules above continue to apply.
  2. Taught Postgraduates and Undergraduates - HMRC do not accept that these students are in the same position and state that the students are receiving education through their involvement with these projects.  Consequently if any Taught Postgraduate or Undergraduate students are involved on projects funded by sponsors in categories R4, R5, R6 and R7 the Input VAT is not recoverable and must be treated as Mixed Use (VAT Indicator PR).  Any such Input VAT will fall as a charge to the school unless the project sponsors terms and conditions allow the cost to be charged to the project.

The gross cost is automatically charged to the project when you use VAT Indicator PR or NR.  If the VAT is disallowed as a charge to the project it is the responsibility of the school to transfer the VAT charge to an appropriate school account.

VAT Code Defaults will be set up on the system in order to assist staff in ensuring that the correct VAT Indicators are used for projects.

VAT Guidance for Subsidiary Companies VAT Guidance for Subsidiary Companies

The normal rule when raising University invoices is to identify the type of supply being made and charge VAT as appropriate.

Where the customer is a Subsidiary of the University you must first identify whether or not the company is included within the University's VAT Group Registration.

If the supply is to a Subsidiary which is not part of the VAT Group the supply is treated in the same way as to any other customer with VAT being charged as appropriate.  Those Subsidiaries not included within the University's VAT Group Registration are:-

  • UEA Estate Services Ltd
  • Credibility Ltd

If the supply is to a Subsidiary which is part of the VAT Group it is not a supply for VAT purposes and theefore no VAT is chargeable.  Those Subsidiaries included within the University's VAT Group Registration are:

  • UEA Enterprises Ltd
  • International Development UEA
  • East Anglian University Residences Ltd
  • UEA NRP Investments Ltd
  • UEA Accommodation 2 Ltd
  • SYS Consulting Ltd
  • Enventure Associates Ltd
  • UEA Consulting Ltd
  • Incrops Ltd
  • UEA Utilities Ltd
  • UEA Student Residences Ltd
  • Carbon Connections UK Ltd
  • NEUEAG Ltd

Transactions with Subsidiaries which are part of the VAT Group do not therefore require invoices to be raised (unless specifically requested) as the transactions can be processed as internal transfers.

The special ledger codes to be used for Intercompany Transactions are given in 'Internal Recharges and Transfers' and are as follows:

Intercompany Income should be credited to account code 1800 and Intercompany Expenditure should be charged to account code 2090 (payroll) or 3990 (non payroll)