1. MemNet Membership Excellence Conference
VAT – common problem areas and an update on recent developments
24 February 2012

2. What we are going to cover?
Common problem areas
Liability of supplies
Partial exemption
standard method
de-minimis input VAT
annual adjustment
special methods
Grant funding
Business and non-business apportionment

3. What we are going to cover?
Subscriptions
Single/multiple supplies
Place of supply rules
VAT exemptions
Recent developments
Penalty regime
Cost sharing exemption
Questions and answers

4. Liability of supply Supply Taxable Exempt Outside the scope of VAT
Schedule 9 VATA 1994
Standard
Rate
20%
Lower
Rate 5%
Zero
Rate 0%
Schedule 8 VATA 1994

5. Method of determining liability
Schedule Zero rated
Schedule Exempt
Lower Rate Specific
Outside the scope Specific
Standard rated
Zero rating takes priority over exemption

6. Exemptions Schedule 9, VATA 1994 provides a list of exempt items:
Group 1 Land
Group 2 Insurance
Group 5 Finance
Group 7 Health and welfare
Group 9 Trade unions and professional bodies

7. Partial exemption - overview
XYZ is partially exempt as some of its turnover is standard rated and some is exempt.
Input Tax
Inputs are recoverable to the extent that they relate to a taxable supply (sale).
Need to apportion residual input tax of £25,000 between taxable and exempt supplies to determine recoverability.
Taxable Turnover
£100,000
Exempt Turnover
£398,000
£15,000
£25,000
£60,000 ?

8. Partial exemption – standard method
Input Tax
The standard method of apportionment is:
Taxable supplies (excluding VAT)
Total supplies (excluding VAT)
This fraction should be expressed as a % and rounded up to the next whole number.
The percentage should then be applied to the residual input VAT.
When calculating this fraction you should exclude supplies of land, capital goods or self supplies. You should aim to have a fraction reflecting normal trading activities and anything strange should be excluded.
Taxable Turnover
£100,000
Exempt Turnover
£398,000
£15,000
£60,000
£25,000

9. Partial exemption – standard method
Input Tax
For example
100, x = 21%
100, ,000
Taxable Turnover
£100,000
Exempt Turnover
£398,000
£15,000
£60,000
£25,000
Round up from 20.08%

10. Partial exemption – standard method
Input Tax
The inputs that relate to taxable supplies are recoverable.
The inputs that relate to exempt supplies are irrecoverable.
Taxable Turnover
£100,000
Exempt Turnover
£398,000
£15,000
£25,000
£60,000
21%
79%
= £5,250
= £19,750

11. Partial exemption – de-minimis input VAT
It is possible to reclaim the input VAT relating to exempt supplies if the amounts involved are below a certain limit.
To be de-minimis the total exempt input tax must be less than or equal to:
£625 per month on average, and
50% of total input tax.
Must be
both!

12. Partial exemption – annual adjustment
Partial exemption calculations are performed every quarter
input tax is therefore reclaimed on a quarterly basis
These calculations are not final
At the end of the VAT year the membership organisation must perform an annual calculation using annual supplies and annual input tax figures
the de-minimis is then applied on an annual basis
The membership organisation should calculate the correct reclaim for the year based on these figures
this will then be compared to the quarterly reclaims and any difference is known as the annual adjustment

13. Partial exemption – special methods
Standard method applies by default.
Membership organisation can agree a special method with Customs.
Methods can be based on:
number of transactions
floor area
staff numbers
inputs
time
Once a special method has been agreed with Customs, the membership organisation must apply the method until both parties agree it is no longer appropriate.
Approval or direction of special methods must be in writing.
Fairer apportionment of residual VAT

14. Other problem areas Grant funding
Business and non-business apportionment
Subscriptions
voluntary payments or donations
subscriptions which include a donation
subscriptions from overseas members
Transactions with more than one element
single/multiple supplies

15. Other problem areas (continued)
Property issues
Place of supply rules
VAT exemptions:
referable to the aims
British Association of Leisure Parks, Piers & Attractions Ltd
right of admission
not available where a payment other than a membership subscription
supplies to non-members

16. Recent developments – Penalty regime
Single regime for all taxes
Compliance spectrum “innocent to guilty”
Penalty system based on “behaviour”

17. Recent developments - Penalty regime
4 types of penalties:
“careless” inaccuracy 30%
“deliberate but not concealed” inaccuracy 70%
“deliberate and concealed” inaccuracy 100%
neglect penalty 30%
Potential lost revenue

18. Recent developments - Penalty regime
More than one inaccuracy
Offset over-declarations/under-declarations
Mitigation “reduction for disclosure”
careless – up to zero penalty
deliberate but not concealed – minimum 20% penalty
deliberate and concealed – minimum 30% penalty
Error correction notifications (voluntary disclosures)
lower than £10,000
between £10,000 and £50,000 but does not exceed 1% of box 6

19. Recent developments - Cost sharing exemption
EU law since1977
Not adopted in the UK as previously perceived to be “too difficult”, now pressure from the EU to adopt
Economy of scale and “staff costs”
Cost Sharing Group (CSG):
SPV with no direct control
Services “directly necessary” for exempt/non-business activity
Minimum level of exempt/non-business activity
2012

20. Questions and answers Bob Jones Indirect tax partner
DDI:
Luigi Lungarella
Indirect tax manager
DDI:

21. Questions to consider Is your organisation partially exempt?
If so is there an approved partial exemption special method?
If so, when was it last updated?
Does your organisation receive grant income or is it under contract to national/local government organisations?
If so have you considered the VAT implications?
Do you review your VAT accounting procedures on a regular basis to ensure full compliance in respect of the penalty regime?

22. This seminar and the accompanying handouts cover topics only in general terms and are intended to give a wide audience an outline understanding of issues relating to accounting applicable to entities in general, and therefore cannot be relied upon to cover specific situations; applications of the principles would depend on the particular circumstances involved. Furthermore, responses given in the seminar to questions are only based on an outline understanding of the facts and circumstances of the cases and therefore do not form an appropriate substitute for considered specific advice tailored to your circumstances. We recommend that you obtain professional advice before acting, or refraining from acting, on any of the contents. We would be pleased to advise you on the application of the principles demonstrated at the seminar, or on any other matters, to your specific circumstances, but in the absence of such specific advice, we cannot be responsible or held liable.
© Littlejohn