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FM 113 VALUE ADDED TAX
1. This Finance Memorandum supersedes FM 48, dated 6 December 1993, which is hereby cancelled. 2. The purpose of this FM is to give an overview of VAT and to provide instructions for accounting for VAT. It also outlines the treatment of VAT with respect to particular circumstances of purchases and supplies in each of PPARC’s Establishments and identifies sources of further information and guidance. 3. VAT is charged on taxable supplies of goods and services made in the United Kingdom (UK), or deemed to be made in the UK, in the course or furtherance of business by a taxable person ("taxable person" includes corporate bodies and partnerships). It is also charged on importation of goods into the UK from outside the European Union (EU). VAT is similarly chargeable on services provided abroad but deemed to be received in the UK. Goods acquired in the EU are also subject to a VAT charge.4. PPARC is a "taxable person" as defined in the VAT Act 1994 s. 3(1), but see also paragraph 6 below. 5. Both EU and UK law govern VAT. The main EU law is the Sixth VAT Directive (Dir.77/388). The UK primary law is the Value Added Tax Act 1994. VAT is an assigned matter as defined in the Customs & Excise Management Act 1979 s. 1(1) and by virtue of the VAT Act 1994 schedule 11 paragraph 1(1) it is under the care and management of the Commissioners of Customs and Excise who have the power to determine the detailed requirements of VAT. These provisions and conditions are set out either in regulations made by Statutory Instrument (secondary legislation) or in VAT Notices (see paragraph 9) which also have, in whole or in part, statutory authority (tertiary legislation).6. PPARC is a body governed by public law because it meets the definition in EU legislation. The Sixth VAT Directive imposes special conditions on PPARC’s activities as a public body but when PPARC acts as a commercial body it is subject to all the normal rules of VAT. For the purposes of UK law PPARC is a public body listed in the publication "Public Bodies" prepared by the Office of Public Services. PPARC is not, however, a public body eligible under s. 33 or s. 41 of the VAT Act 1994 to recover input tax (see paragraph 54 below) on non-business activity. 7. PPARC is required to submit quarterly VAT returns to HMCE. These are compiled in Swindon Office using data supplied by the Establishments. See paragraph 22 for details of the procedure to be followed. SOURCES OF FURTHER INFORMATION AND GUIDANCE 8. Staff responsible for the purchase or supply of goods or services are expected to be familiar with PPARC’s VAT Briefing Notes issued by PPARC Finance Division, Swindon Office. These VAT Briefing Notes are produced to cover areas of VAT of particular concern to PPARC. Each Establishment’s Nominated VAT Officer (see paragraph 19 below) holds copies of the current VAT Briefing Notes. In Swindon Office they are filed on PLANET – s:\VATNotes\*.* and can also be accessed via PPARC’s Intranet. A glossary of VAT terminology can be found in VAT Briefing Note No 2. An index to the VAT Briefing Notes can be found at Annex A to this FM.9. Guidance is also available in the form of VAT Notices issued by HMCE explaining areas of VAT. Some sections of these notices also have effect as tertiary law. VAT Notice 747 lists those VAT Notices having the force of law. The current Notice 747 is dated February 1998. The full list of VAT Notices is published in VAT Notice 999, which is updated every six months. The list is also available on the HMCE web site (http://www.hmce.gov.uk/general/site/index.htm) where it is updated monthly. The text of many of the notices is also available on the same web site. HMCE VAT Notices are written for the generality of traders and their application to PPARC’s activity is not always clear. The terms of relevant notices should be followed except where they conflict with the terms of this FM or the PPARC VAT Briefing Notes. In cases of doubt or in the event of any apparent conflict, advice must be sought from David Wilkinson in PPARC Finance Division, Swindon Office. (See paragraph 76 for contact details.) 10. PPARC Finance Division, Swindon Office, maintains a reference library of VAT publications and guides including the looseleaf VAT guide published by the Croner.CCH Group Ltd. The latter guide contains all the current HMCE VAT Notices with relevant primary, secondary and tertiary UK and EU legislation and is regularly updated. 11. Any queries concerning the interpretation or application of VAT legislation must be directed to David Wilkinson (see paragraphs 30-33 below) and should not be addressed directly to HMCE by individual Establishments. 12. PPARC is registered as part of a group registration together with BBSRC, CCLRC, EPSRC, ESRC and NERC. PPARC is the representative member of the group which is called the Particle Physics and Astronomy Research Council VAT Group. It is important to use the proper title in cross border transactions, as HMCE may not otherwise confirm the validity of the registration number. NB The MRC is not part of the PPARC VAT group. 13. Transactions relevant to VAT made by any VAT Group member are deemed to be the transactions of the Representative Member. 14. The PPARC VAT Group’s registration number is 618 3673 25. This number must be quoted on all tax invoices and other appropriate documentation. It must be prefaced with GB if the invoice or document is being issued to another EU member state. 15. The Group’s VAT Registration Certificate is held on file PF/BA/13 in Swindon Office.PPARC NOMINATED OFFICERS RESPONSIBLE FOR VAT MATTERS 16. Each Establishment must nominate an officer responsible for VAT matters. The nominated officer’s duties shall include:
17. Whilst PPARC’s VAT return is compiled by PPARC Finance Division, Swindon Office, each Establishment is treated as a self accounting unit and is responsible for preparing its own data for inclusion in the VAT return. 18. ING and JAC are required to submit returns of EU Acquisitions only, including nil returns, as described in the "Timetable for Information Requirements" letter issued annually by the Head of Finance, PPARC. 19. The deadline for the VAT return data supplied by Establishments to PPARC Finance Division, Swindon Office, is three weeks after the end of the quarterly accounting period to which it relates. 20. As PPARC is part of a group registration, the data supplied by Establishments is consolidated into a PPARC-wide VAT return for inclusion with the other Research Councils’ data into the group return. All calculations relating to PPARC are made by PPARC Finance Division, Swindon Office. 21. The quarterly accounting periods for PPARC are:
PROCEDURE AT THE END OF EACH QUARTERLY ACCOUNTING PERIOD 22. The quarterly return (form VAT 100) for the whole VAT Group will be rendered by PPARC Finance Division, Swindon Office, to the HMCE VAT Central Unit at Southend-on-Sea. For this purpose Establishments must forward their VAT return data to PPARC Finance Division, Swindon Office, no later than three weeks after the end of each accounting period as stated in paragraphs 19 and 21. The information required for each quarter is set out in Annex C. ESTABLISHMENTS FURTHER ACCOUNTING ACTION 23. Each Establishment will be advised by PPARC Finance Division, Swindon Office, of its data included in the return. Refunds claimed under paragraph 55 will be credited to the Establishment concerned. ADJUSTMENTS TO A PREVIOUS QUARTER’S RETURN 24. Establishments must report to PPARC Finance Division, Swindon Office any error on a previous quarter’s return, immediately the error is discovered. HMCE charges interest on underpaid tax with the result that delay increases the financial cost to the Establishment. 25. PPARC Finance Division, Swindon Office will make any necessary recalculations of net tax payable or recoverable. Errors of less than £2,000 net will be adjusted in the next quarterly return (VAT100). For errors greater than £2,000 net PPARC Finance Division, Swindon Office, will submit a Voluntary Disclosure (form VAT 652) to HMCE. Where the error continued for more than one VAT return period the Voluntary Disclosure requires the adjustment to be calculated for each quarter. 26. Any penalty or interest imposed by HMCE will be charged to the Establishment concerned.27. HMCE impose substantial penalties for incorrect or late submission of VAT returns including interest on under-declared tax. Whichever Establishment is responsible for the imposition of any such penalty or interest will have to stand its cost. 28. Because PPARC is part of a group registration the penalty borne by an Establishment responsible for late submission will be based on the group-wide figures. 29. It is, therefore, important that all Establishments submit correct data and meet the deadline stated in paragraph 19 for submitting data to the VAT Officer in Swindon Office (currently David Wilkinson). INTERACTION WITH HM CUSTOMS & EXCISE 30. Individual Establishments may maintain direct contact with local VAT offices for routine documentation of imports, exports, etc. However, local VAT officers in HMCE will not always have sufficient familiarity with Research Council activity to give clear guidance on interpreting regulations. 31. PPARC comes under the HMCE Large Traders Control District in Swindon. Its officers have an understanding of PPARC’s work. PPARC’s contact point with this office is David Wilkinson. Questions of interpretation of VAT legislation must be addressed to David Wilkinson and will be referred by PPARC Finance Division, Swindon Office to HMCE in Swindon where necessary. Whilst a number of precedents have been set, these are subject to change and may need to be checked with HMCE in Swindon before an answer can be given. Cases that may be politically sensitive must be referred immediately to PPARC Finance Division, Swindon Office, (through David Wilkinson) for assessment by senior management. 32. The VAT Officers of HMCE in Swindon are responsible for the inspection of PPARC’s VAT records held centrally and, where necessary, for arranging visits to UK Establishments to verify the correctness of their VAT accounts. Such visits will normally be arranged through PPARC Finance Division, Swindon Office.33. Where oral advice is received from HMCE written confirmation of it must always be obtained. If no such confirmation is received, PPARC’s officers must write to HMCE stating their understanding in order to prompt confirmation or disagreement. PROTECTING PPARC’s POSITION 34. All of PPARC’s staff with responsibility for the disbursement of funds or for contracting to supply, or purchase, goods or services should be aware of potential VAT implications in their actions because this may have significant impact on value for money. 35. If a contract makes no reference to VAT then the consideration is deemed to include the tax (VAT Act 1994 s. 19(2)). The purchaser may reject any request to pay VAT in addition to the stated consideration. It is therefore important to ensure that contracts make appropriate reference to VAT. 36. Because VAT regulations are complex and subject to change it is not possible to summarise all potential VAT liabilities. Any officer of PPARC who is considering a single transaction, or series of related transactions, with a potential VAT value in excess of £1000 (a supply value of approximately £5700) should consult the Establishment’s officer nominated under paragraph 16 or, through that officer, PPARC Finance Division, Swindon Office. OUTPUT TAX (ie VAT charged by PPARC on goods or services which it sells) 37. PPARC is required to account for VAT on all taxable supplies of goods and services. If that VAT is not collected this will represent a loss to PPARC. Supplies made by PPARC fall into a number of different classes for VAT. Officers of PPARC negotiating the sale of goods or services (including gifts of equipment) should be aware that the applicability of VAT depends on the nature of the activity undertaken and the way it is described. They should also ensure customers and collaborators understand the correct status. 38. PPARC must account for output tax in accordance with the rules on "time of supply" regardless of whether payment has been received. The previous practice of accounting for VAT on the basis of actual receipts ceased on 1 April 1998.39. Each UK based Establishment is required to maintain a VAT Output Tax Suspense Account. The output tax charged on sales must be credited to this account. 40. The procedures for charging VAT, invoicing customers and recording outputs are described in VAT Notice 700 (The VAT Guide) and VAT Notice 700/15 (The Ins and Outs of VAT). These apply to PPARC for all "business" transactions. Supplies Within the PPARC VAT Group 41. Supplies between the PPARC VAT Group Members (see paragraph 12) are disregarded for VAT and are outside the scope. Output tax cannot be added to the charge to another group member. (Input tax on direct purchases is generally not recoverable from HMCE and must be taken into account when costing the supply. A non-recoverable proportion of input tax on overheads must also be taken into account. Input tax may be recoverable if the group member receiving the supply will ultimately make a taxable supply to a customer outside the group. If so then it must not be costed in.) 42. Supplies are subject to VAT at the zero rate in four circumstances:
43. The output tax chargeable on a zero rated supply is nil. (Input tax on direct purchases and on a proportion of overheads is recoverable from HMCE.) 44. Exports of services are not zero rated in the same way as goods but may be outside the scope with a right to recover input tax. This has a similar effect to zero rating and applies when the service supplied abroad would be taxable if supplied in the UK. 45. Supplies are exempt from VAT if they are listed in Schedule 9 of the VAT Act 1994. The effect of exemption is that output tax is not chargeable on the supply. (Input tax cannot be recovered through the quarterly VAT return. The non-recoverable input tax on both direct purchases and on a proportion of overheads must be taken into account when costing an exempt supply.) 46. European Commission Fourth and Fifth Framework projects have a special status described as "exempt with tax credit". The effect of this is similar to zero rating. Subsequent Framework, and other Commission funded, projects have not been awarded this status as a class. Each project should be considered on its merits. (Establishment Finance Officers will be aware of any PPARC projects having Framework status.) Outside the Scope Supplies 47. Of the supplies made by PPARC the following are likely to be outside the scope of UK VAT:
48. No output tax is chargeable on outside the scope supplies and input tax cannot be recovered. Although the result is similar to exemption it is important to differentiate between an exempt supply and an outside the scope supply. This is because of their different effects on the business/non-business and partial exemption calculations. (See Annex D for the partial exemption calculation method.) 49. Services supplied outside the UK that would have been taxable if supplied in the UK are described as "outside the scope with the right to recover input tax". For these supplies input tax is recoverable. The effect is similar to zero rating but it is important to differentiate between supplies outside the scope with tax recovery and zero rated supplies. This is because the business/non-business and partial exemption calculations may otherwise be distorted.50. Establishments will be informed by PPARC Finance Division, Swindon Office, of the date for implementing any changes in the rate, and/or application, of VAT. 51. Establishments are reminded that the normal provisions of the law in relation to the tax point apply to PPARC supplies. The dispensation referred to in paragraph 17 of the former FM 48 no longer exists since PPARC ceased cash accounting for VAT on 1 April 1998. 52. Where VAT at the standard rate is added to a tax exclusive charge, the new rate shall be applied to all supplies with a tax point falling on or after the relevant date. 53. Where the charge is on a tax inclusive basis the charge should be adjusted where possible to take full account of the new rate of tax from the relevant date. In those cases where the change in charges would be trivial, Establishments should introduce the adjustment in VAT through the mechanism of the normal review of fees and charges but shall not incur a loss by so doing. INPUT TAX (ie VAT incurred by PPARC on goods and services received) 54. The VAT element in payments made by PPARC shall be charged with the rest of the payment to the appropriate expenditure code(s) as part of the total price of the goods and services bought. 55. Input tax incurred on purchases attributed to (ie used wholly for making) taxable supplies (ie standard rated or zero rated outputs) is recoverable from HMCE. Input tax on purchases used partially for making taxable supplies may be allocated between (ie indirectly attributed) the taxable and non-taxable outputs by management accounting procedures. The proportion of input tax allocated to taxable outputs is recoverable from HMCE. 56. For the purpose of input tax recovery supplies classed as "exempt with tax credit" or as "outside the scope with the right to recover input tax" will be treated as zero rated. 57. Input tax incurred on purchases such as overheads that cannot be attributed or allocated may be apportioned by a partial exemption calculation. The proportion of such input tax apportioned to taxable outputs may also be recovered from HMCE. Partial exemption and business/non-business calculations are prescribed in a scheme agreed with HMCE. The details of the scheme are outlined in the exchange of correspondence at Annexes B and D. 58. PPARC is legally obliged to follow the scheme approved by HMCE for calculating partial exemption by regulations 101 and 102 of the VAT Regulations 1995 (SI 1995/2518). 59. The scheme agreed with HMCE for the business/non-business calculation is accepted as meeting the requirements of the VAT Act 1994 s. 24(5) to make a fair and reasonable apportionment. 60. The amount of VAT paid as input tax shall be recorded and analysed so that appropriate recovery can be made from HMCE. 61. VAT paid as input tax shall be identified in accordance with the PUFFS Ordering and Invoice Processing procedures. 62. The actual calculation of deductible input tax will be made in PPARC Finance Division, Swindon Office, using the data supplied by the Establishments.63. Disbursements are made when PPARC merely acts as a channel for funds. Disbursements will be treated as outside the scope of VAT. 64. Examples of disbursements specific to PPARC include payments of international subscriptions (eg to CERN), studentships and most PUST awards. 65. More generally disbursements are payments made on behalf of another party where PPARC does not receive benefit and is reimbursed for the payment. VAT Notice 700 paragraph 10.8 outlines the conditions for such payments to be treated as disbursements. 66. To avoid distortion of the business/non-business percentages, disbursements will be excluded from the calculations. EC SALES LISTS and INTRASTATS 67. For VAT purposes, the UK Establishments of PPARC are treated as self-accounting units. Each UK Establishment is required to submit form VAT 101 to HMCE by the tenth working day following the end of the period. The form is used to report on goods sold into other EU Member States. 68. Pre-printed forms identifying the Establishment and period are issued by HMCE VAT Central Unit. 69. The values entered in form VAT 101 must correspond to the amount entered in box 8 of the quarterly VAT return. Nil returns are not required. 70. EC Sales Lists and Intrastat forms are used to record the movement goods only. Do not enter the value of services. 71. Each UK Establishment must also submit Intrastat, also called Supplementary Declaration, forms giving details of goods sold into, or purchased from, other EU Member States. Form C1500 is used for Arrivals and C1501 for Dispatches. 72. There is a threshold value of trading below which Intrastats are not required. The threshold applies to the group as a whole. Although PPARC may be below the threshold, the level of trading by other group members means that we must submit the forms. 73. Blank forms are available direct from HMCE. 74. The values entered in the Intrastat forms must correspond to the amount entered in boxes 8 and 9 of the quarterly VAT return. Nil returns are not required.75. Copies of the EC Sales List form VAT 101 and of the Intrastat forms C1500 Arrivals) and C1501 (Despatches) should be sent to Finance Division, Swindon Office at the same time as the originals are submitted to HMCE. QUERIES AND ADDITIONAL INFORMATION 76. Any queries concerning the content or interpretation of this FM and/or questions on the interpretation of VAT legislation must be referred to PPARC Finance Division, Swindon Office. The contact point is: David Wilkinson, tel: 01793 442038, e-mail: david.wilkinson@pparc.ac.uk. Jeff Down INDEX TO PPARC VAT BRIEFING NOTES
Copies of the current PPARC VAT Briefing Notes may be obtained from David Wilkinson, Finance Division, Swindon Office.
Text of letter from
Jeff Down (PPARC, Head of Finance) to HM Customs & Excise Dear Sirs BUSINESS/NON-BUSINESS 1. I refer to our discussions regarding a method for determining the proportion of input tax incurred by the above Group Registration that relates to its business activities and can therefore be regarded as input tax. I propose the adoption of the method detailed below. 2. METHOD OF DETERMINING INPUT TAX
2.1 This method is proposed in the context of our current structure and activities. Should there be any changes in the structure or activities of the Research Councils, the VAT Group membership, or any changes in trading patterns to such an extent that the agreed method no longer produces a fair and reasonable method of determining input tax we will inform H M Customs and Excise. Tax Year 2.2 The tax year for the purposes of this calculation begins on I April and ends on 31 March. Treatment of Research Councils/Institutes/Branches as Self Accounting Units 2.3 The Research Councils and certain Institutes/Branches included within this Group Registration will be treated as "Self Accounting Units" for the purposes of this calculation. This means that each Research Council and the Institutes/Branches detailed at Appendix A will apply the method independently of the other Self Accounting Units. If we wish to add or delete any "Unit" to/from this list we will re-issue the list after notifying HM Customs and Excise. Allocation of VAT 2.4 VAT which cannot be attributed directly to a project/cost centre will be allocated to such projects/cost centres in line with the allocation of costs carried out within each Self Accounting Unit's own cost accounting system and will be regarded as having been indirectly attributed. We understand that HM Customs & Excise will review such systems to ensure the integrity of such allocation methods. Calculation of Input Tax 2.5 In each prescribed accounting period each Self Accounting Unit will:
Annual Adjustment 2.6
(i) We will use provisionally the previous years Business/Non Business
percentage to
Review of the Method 2.7 We will use this method of determining the proportion of VAT incurred which may be treated as input tax from I April 1994 but understand it will be subject to review by the Commissioners of Customs and Excise. We will advise the Commissioners should we intend to change the method used. Yours faithfully J F Down ************ Appendix A to letter dated 16 December 1996 LIST OF SELF-ACCOUNTING UNITS Groups Members to be treated as "Self Accounting Councils": PPARC - Representative
member Institutes to be treated as "Self Accounting Branches": PPARC
Establishments: The Observatories
Appendix B to letter dated 16 December 1996
BUSINESS/NON-BUSINESS - METHOD OF DETERMINING INPUT TAX A. CALCULATION OF BUSINESS/NON-BUSINESS PROPORTION Step 1 Step 2 Step 3 Income (excluding VAT)
from business activities
x 100 B. CALCULATION OF INPUT TAX Step 4 Step 5
Text of reply from
Christine Glenville (HM Customs & Excise) to Jeff Down (PPARC, Head of
Finance)
Dear Mr Down Business/Non-business Thank you for your letter of 16 December 1996. 1 confirm that your proposals for determining the proportion of VAT incurred by the Research Councils and their Institutes are acceptable. I would, however, like to make the following comments:
Yours sincerely Christine Glenville
(Mrs) Text of letter from
Gary Marsh (Surveyor of Customs and Excise) to David Bennett (Deputy Head of
Finance (PPARC) Dear Sirs PARTIAL EXEMPTION SPECIAL METHOD 1. Consideration has been given to your letter dated 25 October 1996 and your request to use a special method for partial exemption. The Commissioners are prepared to approve your application subject to the conditions below. 2. You must use this method to calculate your recoverable input tax with effect from 1 April 1994 and you must use it until such time as the Commissioners approve or direct the termination of its use. This approval is given in the context of your current business structure and trading patterns and the method used to calculate input tax proposed in your letter of 17 December 1996. Should there be any changes in the structure of your business, the VAT Group membership, the method you use to calculate input tax or any changes in trading patterns to such an extent that the agreed method no longer produces a fair and reasonable recovery of input tax, you should inform this Office in writing immediately. 3. Definition of taxable/exempt supplies 3.1 For the purpose of this method "taxable supplies" are:
3.2 For the purpose of this method "exempt supplies" are:
4. Definition of tax year Your tax year being on 1 April and ends on 31 March. 5. Treatment of Research Councils/Institutes as "Self Accounting Units" The Research Councils and certain Institutes included in this Group Registration may be treated as a Self Accounting Unit for the purposes of this partial exemption method. This means that each Research Council and the Institutes detailed at Appendix A will carry out its own calculations for determining recoverable input tax described at 8. below. 6. Allocation of VAT VAT which cannot be attributed directly to a project/cost centre will be allocated to such projects/cost centres in line with the allocation of costs carried out within each Self Accounting Unit's own (cost) accounting system and will be regarded as having been indirectly attributed. The systems used to allocate costs will be subject to review by Customs & Excise. 7. Use of input tax Where goods and/or services are procured by one Self Accounting Unit for use in whole or in part by another Self Accounting Unit, or where goods and/or services obtained by one Self Accounting Unit are used for the benefit of another Self Accounting Unit any input tax incurred may only be recovered to the extent that it is used in making taxable supplies by the Self Accounting Unit consuming or benefiting from the supply. 8. Calculation of recoverable input tax In each prescribed accounting period each Self Accounting Unit will:
9. Values to be excluded When calculating the proportions within this method you must exclude from the numerator and denominator the value of all supplies in the following categories:
10. Where input tax incurred in respect of any of the above supplies is excluded from the calculations at paragraph 8. above and cannot be directly attributed to a supply, it can only be recovered to the extent that the goods and services on which such tax has been incurred are used to make taxable supplies. 11. Distortive values Any element which results in the recovery of input tax being disproportionate to the value of taxable supplies made must be excluded from the method and dealt with separately. 12. Non-deductible input tax Nothing in this method should be taken to me-an that normally non-deductible input tax such as business entertainment can be recovered either in whole or in part. 13. Annual adjustment
14. Please sign and date the duplicate copy of this letter to indicate acceptance of the conditions set out herein and return it to this Office. Yours faithfully Gary Marsh
Signed:
David
Bennett Last updated: 29 June 2001 |