1. VAT for Local Councils A training module for parish and town councils
Prepared for the Hampshire, Oxfordshire and Berkshire Associations of Local Councils

2. Objectives
To give an overview of the relevant legislation and guidance
To explain key concepts of VAT
To outline the processes involved
To highlight common problem areas
To provide signposting to more detailed guidance

3. Course Outline Legislation and guidance
Making supplies of goods and services
VAT Registration
Recovering VAT on purchases
Partial exemption and opting to tax
Using grants and donations
Open forum

4. Legislation Value Added Tax Act 1994
Section 33 – Reclaim of VAT by public bodies
Section 42 – Registration of public bodies for VAT
Section 96(4) – definition of public bodies
Schedule 7A – Reduced rate supplies
Schedule 8 – Zero rate supplies
Schedule 9 – Exempt supplies

5. Guidance VAT Notice 749 – Local Authorities and similar bodies
VAT Notice 742 – Land and Property
VAT Notice 742A – Opting to Tax
VAT Notice 701/1 – Charities
VAT Notice 700 – the VAT guide

6. Guidance VAT Notice 701/32 – Burial & Cremation
VAT Notice 701/41 – Sponsorship
VAT Notice 701/45 - Sports
VAT Notice 700/45 – Error correction

7. What is the scope of VAT? VAT is charged on taxable supplies
made by a taxable person
in the course of a business

8. Business & non-business
Business activities
making supplies in return
for payment,
with a degree of frequency
and scale,
continuing over time,
Which could be provided
by the private sector
Non-business activities
Acting as a public authority
providing services for free
or under statutory duty (e.g.
allotments, burial grounds)
leases of £1 or less
or of negligible scale and
would not distort competition

9. Business & non-business
Business activities may be:
Taxable supplies (Standard, reduced or zero rated)
Exempt supplies (Mainly land and property)
“A taxable supply is a supply of goods and services in the United Kingdom, other than an exempt supply”
Section 4(2) VAT Act 1994

10. Business & non-business
Tax status of supplies outlined in Section 29 of the VAT guide (VAT Notice 700), but specified in VAT Act 1994)
Schedules 7A – reduced rate
Schedule 8 – zero rate
Schedule 9 – exempt supplies

11. VAT
Business
Non-business
Taxable
20% 5% 0%
Exempt

12. Registration Does my council need to register for VAT?
Yes, if your council makes any taxable supplies (including zero rated) in the course of a business
Section 42, VAT Act 1994
Only enforced if the output tax (VAT charged to customers) would exceed £1,000 per annum
Registration thresholds for businesses do not apply

13. Exercise 1

14. Public Bodies Special regime for public bodies
Section 33, VAT Act 1994
Local authorities, Internal Drainage Boards, Passenger Transport, Port Health and Police Authorities, BBC, Probation Committees, NRA, National Parks...
NOT Parish Meetings, Village Hall Committees, Community Associations, Parochial Church Council or grant funded bodies

15. Reclaiming VAT
All parish councils, whether VAT registered or not, can reclaim VAT on their non-business activities
VAT registered parish councils can reclaim VAT on their standard, zero and reduced rate business activities
VAT exempt supplies treated differently

16. Reclaiming VAT To reclaim VAT on non-business activity,
a council must:
Place the order
Receive the supply
Receive a tax invoice addressed to it
Pay from its own funds (including funds awarded to it)

17. Exempt Supplies Supplies of land or buildings generally VAT exempt
Including leases over £1 and blocks of 10 or more sporting lets
Input tax incurred on creating exempt supplies only reclaimable if less than £7,500 per annum (or 5% of turnover for large bodies)
Partial exemption calculation

18. VAT Expenditure Parks Allotments Public Hall Admin Events Mixed
Business
Non-business
Taxable
Exempt

19. VAT on large projects VAT Notice 708 – Buildings and Construction
VAT Notice 742 – Land and Property
VAT Notice 742A – Opting to tax
Supplies of land or buildings generally VAT exempt
Including leases, or blocks of 10 or more sporting lets
Input tax on exempt supplies only reclaimable if less than £7,500 per annum

20. VAT on large projects Typical example -
Build a pavilion for £200,000 (VAT £40,000)
Leased to football club for £500 a year
Can't reclaim VAT
Options
Option to tax (exempt supply becomes taxable)
Let for £1 or less, full repairing lease (non-business)
Don't lease, allow weekly bookings (taxable)

21. Exercise 2

22. Grants & Donations
Where a council uses money given to it for a specific purpose, it must:
Remain owner of the goods
Use them, or make them available, for its own non- business purposes
Not do something for the donor, or a third party, in return for the payment

23. Grants & Donations VAT cannot be recovered under section 33 if:
You give or do something in return for the money
You agree to allow a third party to benefit
But this does not stop you:
Acknowledging the donation on a plaque or in a programme
Complying with reporting conditions of a grant

24. Grants & Donations
VAT cannot be recovered on money that is outside of the council's accounts, such as:
Money paid into a community project fund held by another body
Trust funds (unless the council is sole managing trustee and the trust's activity is difficult to distinguish from the councils activity)

25. Exercise 3

26. Reclaiming VAT Unregistered – VAT form 126
Unique “UB” reference number
Claim at least annually (can be monthly)
Registered –
Quarterly return, done online since April 2010,
unique VAT registration number
Account for “Input” (purchases) and “output” (sales) tax

27. Accounting for VAT VAT column in cash book
Including income records if VAT registered
VAT control account in ledger (if used)
Receipts and payments accounts include VAT
Income and expenditure accounts exclude VAT, except as a debtor on the balance sheet

28. Charity accounts
VAT treatment of charitable funds different from council taxpayers fund
Section 33 recovery of non-business VAT does not apply, unless council is sole managing trustee
Separate meetings should be held when acting as trustees, with separate minutes

29. Conclusion Keep up to date Attend training/networking Don't guess, ASK
Take advice
HMRC National Advice Service –
HMRC VAT Written Enquiries Section, Alexander House,
Victoria Avenue, Southend, Essex SS99 1BD

30. Questions?