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VAT Exempt Organisations

Infinite
  • 82 posts
  • # 72854

I was asked a question I couldn't answer and was hoping someone here would be able to help.

I know of a VAT Registered company who supplied services to an organisation providing training.  The training organsation stated they are VAT exempt and that, therefore, the supplying company cannot charge them VAT.  Surely, the supplier being VAT registered must charge VAT on all its products and services and the training organisation would be subject to some sort of VAT relief?  How would this work?

I feel I should know the answer to this but don't.  Any help/guidance would be very much appreciated.
Geoff
  • 180 posts
  • # 72856

 

My opinion -

If a VAT registered entity supplies goods and/or services which are subject to VAT then they must charge VAT on their invoices.

If the recipient of those goods and/or services is not registered for VAT or has VAT exempt status then that, unfortunately, is tough.

In essence that is how VAT works.

It may be that the organisation receiving the goods/services is not registered for VAT in which case it is the same as everyone else who is not registered - for example I am not registered for VAT, don't charge it on my invoices, can't reclaim it on my expenses.

If however they have VAT exempt status on their supplies - perhaps due to education being an exempt supply - it does not necessarily mean that they cannot reclaim all or part of the VAT which they have to pay on supplies made to them by VAT registered entities.


I have a law firm client, VAT registered, which never charges VAT on invoices - all clients are out of UK, but reclaims all VAT on expenses.

There are in some circumstances special rules for VAT exempt entities and a search of HMRC web site will give more information.
Theresa
  • Member
  • 495 posts
  • # 72879

Having just got full marks on my VAT essay.....

If a business provides exclusively an exempt class of supply they may not register for VAT and they may not claim VAT relief.

They still have to pay all input VAT.

A non-profit education provider might fall into this category.

If a business is producing a class or classes of supply that are not exempt (i.e. zero rated, 5% or 20% - the current rates as I type), and their turnover or circumstances are such that they are registered for VAT, it is a legal requirement that they must charge - this charge must be shown on all VAT invoices (which must also show the VAT Reg. No.) even if the VAT rate is 0% - i.e. the invoice must say VAT charged at 0%...... 



May I point you in the direction of the VAT guide provided on  the HMRC website, 195 pages long :(  
(It's notice 700 The VAT Guide)



Geoff - If your company is claiming for input VAT the implication is that some part of the business is producing a VATable supply.......  Could be to do with the more complex cross border rules for VAT? 

Edited at 09 Jul 2011 06:26 PM GMT

Edited at 09 Jul 2011 06:47 PM GMT
Theresa
  • Member
  • 495 posts
  • # 72880

Ok, I've looked further - the section you need is 701/30 Education and vocational training.

There is a chart that details who can and cannot register and the VAT consiquences

I can't paste a link :( but if you google vat 701/30 you'll find it!

 
Theresa
  • Member
  • 495 posts
  • # 72881

Geoff - just because I hate lose ends......

Would Notice 741 and 744D apply?  Place of Supply, srevices of intermediaries, and International services: zero rating.

I would think, having read the sections that your company is a zero rated supply which would make sense of it being VAT registered so as to claim back some of the input VAT and reduce company overheads. 
Geoff
  • 180 posts
  • # 72883

 

Actually it is not very complex.

My client is a lawyer specialising in shipping.

Invoices are submitted to clients who are overseas - for example Greece is a main shipping market. Provided that the clients VAT registration number (EU equivalent) is shown on the invoice then there is no VAT.

Other invoices are addressed to countries outside of the EU for example the Middle East, Asia, Panama and Liberia.

So for these there is no VAT to charge.

However there is a high VAT recovery, stationery, telephones, rent are the big ones.

For anyone who wants to look more closely at VAT regulations (and I certainly can think of better things) the rules regarding international supplies changed on 1 January 2010 with further changes due in 2013 and 2015.

It used to be a case (generally) of where the service was provided and/or where the client belonged. That changed to now having different rules for B2B (Business to Business) and B2C (Business to Consumer).

Too complex to consider here, bottom line for anyone involved in export of goods and/or services is to do your own (and very extensive) research.

Edited to correct from Customer to Consumer



Edited at 09 Jul 2011 09:04 PM GMT
  • Practice Licence
  • 6 posts
  • # 72896

Re the original question

 As a starting point, it is generally correct that the VAT status of your customer should not determine the VAT liability of supplies to it. There are a few exceptions however - such as certain supplies to charities or under a special statutory concession, for certain supplies to international organisations (such as NATO, EU Commission) In any case, it is the responsibility of the supplier to apply the correct VAT treatment and therefore they should obtain a signed declaration as to why VAT should not be charged (assuming this is a UK customer?). Provided the legal basis for this declaration is correct, HMRC tend to take a pragmatic approach to supplies relying on this declaration in the event it turns out to be incorrect.

If you can find out why the customer thinks it should not be charged VAT, I may be able to help further. Certainly, just because they make exempt supplies (as opposed to overseas (outside the scope) or zero rated) there is no obvious reason not to be charged VAT on purchases - suffering irrecoverable VAT is an unfortunate consequence of being involved in an exempt activities.
If the customer is overseas, they do have a habit of using the term "exempt" where we would say zero rated or outside the scope of UK VAT

Nicola
PS - I am also an Associate of the Institute of Indirect Taxation

Edited at 10 Jul 2011 08:43 PM GMT
Infinite
  • 82 posts
  • # 72929

Many thanks for all your responses, they've been extremely useful.

Also refreshing to see that my thought process was along the lines of the answers supplied above Smile.

Thank goodness for the ICB forum! 

Edited at 12 Jul 2011 09:29 AM GMT
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