CORNWALL COUNCIL VAT GUIDE FOR SCHOOLS

1 CORNWALL COUNCIL VAT GUIDE FOR SCHOOLS Prepared jointly by: The VAT Team and the LFS Team Finance Department New County Hall Truro Updated: February 2013 Welcome to the VAT GUIDE for internal users of CORNWALL COUNCIL s accounting systems. We welcome feedback on this GUIDE and rely upon users to let us know when sections of the manual become out of date. Do report any issues or problems to us so that we can ensure the best possible access to this information. Comments about this GUIDE We do understand that the application of VAT law is not easy. Members of the LFS and VAT Teams aim to support you in your endeavours in all matters relating to VAT.

2 If you have any helpful comments about this GUIDE , its content, layout etc. please let us know. Where to take your VAT queries Should you be unable to resolve a VAT-related matter, you should contact your Accounting Technician in the LFS Team in the first instance, they in turn, will contact the VAT Team if necessary. Please, do not contact HM Revenue and Customs direct as the VAT Team was set up for the purpose of consultation with that authority. Should the matter require consultation with the local VAT officers then the VAT Team will do so on your behalf. Your query may give rise to a response which other establishments will require to know and the VAT Team will inform all relevant parties.

3 This approach ensures consistency of the application of VAT and proper representation of your case. The contact in the VAT Team is Lisa Hughes on 01872 323271 or by correspondence to: The VAT Team New County Hall Treyew Road Truro TR1 3AY FAX: 01872 323842 EMAIL: Quotable VAT .. "Common-sense and the law applicable to VAT are not well acquainted" C&E Commissioners -v- Arbib 1995 Some Common Misconceptions Local Authorities don t pay VAT We can reclaim all our VAT It doesn t customer will only claim it back The VAT man will never find it Be aware - this is not true !!!! CC HEALTH WARNING: VAT ERRORS CAN SERIOUSLY DAMAGE YOUR WEALTH INTRODUCTION These notes contain some basic guidance on how VAT applies to the income and expenditure going through the school budget.

4 It is relevant to all Local Authority (LA) SCHOOLS . There is a difference between the SCHOOLS budget and its private fund. Money in the private fund is raised and managed by individuals who are closely related to the school , for example the PTA. It is quite separate to the SCHOOLS budget and you must not include it in the SCHOOLS accounts. The COUNCIL 's VAT return does not apply to private funds and we cannot reclaim the VAT on any purchases. What follows deals with income and expenditure going through the budget not the private fund. If you want to know more about the private fund go to Appendix C.

5 LA SCHOOLS provide education under statute for no charge and in VAT terms this makes them a non-business activity . By contrast, where you make a charge for education you are making a business supply and your charges are Exempt. VAT on purchases can be recovered in both cases. The significance of all this to the LA school is twofold: Income which is closely related to education is not subject to VAT; and VAT on expenditure relating to those activities can generally be recovered from HM Revenue and Customs. In reality, your school will probably be making a mixture of both business and non-business supplies.

6 ABOUT THIS MANUAL It is always difficult to balance the requirements for an easy to read manual and a complex and intricate subject. Such is the case with a VAT manual. In this, the latest version of the VAT manual, an attempt has been made to sectionalise information into common areas with guidance relevant to many of the financial operations of SCHOOLS and sections dealing with more specific areas of service provision. The divisions of the manual are prefixed by letters to assist with reference and are as follows: SC = This section deals with the common rules and regulations relating to the wider application of VAT.

7 SE = This section deals with rules and regulations relating to the application of VAT on some specific areas of supplies. SI = This section deals with rules and regulations relating to the application of VAT on income. We hope that this approach will assist you in solving your VAT problems and will aid us in making more frequent revisions as VAT law changes. If you find any part of the manuals to be out of date please let us know so we can make the appropriate amendments. INDEX Common Areas SC/1 BASICS OF VAT SC/2 WHY IS CORRECT VAT ACCOUNTING IMPORTANT? SC/3 CC VAT REGISTRATION NUMBER/PERSON SC/4 CC VAT CLASSIFICATION SC/5 VAT ACCOUNTING PROCEDURES SC/6 MINIMUM REQUIREMENTS OF INCOME AND EXPENDITURE DOCUMENTS SC/7 VAT RECORD MAINTENANCE AND RETENTION REQUIREMENTS SC/8 NARRATIVE ON CC INVOICES SC/9 TAX POINTS SC/10 DISCOUNTS SC/11 VAT CALCULATION SC/12 CREDIT CARD Specific Areas - Expenditure SE/1 PETTY CASH / IMPREST ACCOUNTS SE/2 TRADE-INS ETC.

8 - NETTING OFF SE/3 SECOND-HAND GOODS SE/4 CHARGES BETWEEN LOCAL AUTHORITIES SE/5 HIRE PURCHASE / LEASING SE/6 REMOVAL/DISTURBANCE EXPENSES FOR OFFICERS SE/7 SPECTACLES FOR USE AT WORK SE/8 TELEPHONES SE/9 BAD DEBT RELIEF SE/10 SUPPLIES OF EDUCATION, VOCATIONAL TRAINING ETC. SE/11 VAT AND THE EUROPEAN COMMUNITY SE/12 CONTRACT PAYMENTS SE/13 VOLUNTARY AIDED SCHOOLS /CO-OPERATIVE TRUSTS SE/14 BURSARY PAYMENTS FOR STUDENTS INDEX Specific Areas - Income SI/1 LETTINGS SI/2 school MEALS SI/3 SALE OF GOODS TO PUPILS SI/4 CLOTHING SI/5 ORGANISED school TRIPS SI/6 school PHOTOGRAPHS SI/7 DONATIONS, SPONSORSHIP, ETC SI/8 OTHER SCHOOLS , ACADEMIES.

9 LOCAL AUTHORITIES & PUBLIC BODIES SI/9 TREATMENT OF SOME REGULAR ITEMS OF INCOME Appendices A Letting Facilities GUIDE B Example of VAT Invoice C school Private Fund D Treatment of income E Treatment of expenditure COMMON RULES AND REGULATIONS (Section SC) SC/1 BASICS OF VAT Theory of VAT VAT is an Indirect Tax a tax on consumption. It was invented in Europe and is in use by all members of the European Union. It is supposed to provide the means to harmonise the fiscal treatment of transactions throughout the EU. The theory is that VAT is charged by the supplier and recovered by the customer at each stage of the commercial chain until one reaches the final consumer.

10 Rates of VAT There are currently three different rates of taxable supplies, they are: Standard Rate Reduced Rate Zero Rate 0% There are also some transactions which are Exempt. Exemption is not a rate of tax. The difference between zero-rating and exemption is important because of its impact on Input Tax recovery. It is important that the correct wording and classification is used. The other category is Outside the Scope which applies to two main areas: business transactions which do not carry VAT such as, sales outside the UK (this is subject to some complex rules), government subsidies and grants and, compensation payments; non-business transactions which relate mainly to Local Authorities and include such items as COUNCIL Tax, Business Rates etc.