Finance
will be. Advertising and promotion would be taxable at 20%, but the sale of tickets to a performance, a one-off fundraising event promoted in aid of the charity, or use of a hall or sports facilities, could be exempt from VAT. But there are specific conditions attached to exemptions.
Where a sponsor receives more than a mere acknowledgement in return for a ‘donation’, this would constitute a business
relationship and therefore would potentially be subject to VAT
is not a significant benefit for, and not expected by, the company. However, if the restaurant
expected to receive press coverage as part of the agreement then this could be considered a promotion service by the school, and that would be subject to VAT (if registered).
Ascertaining taxable value Another important point to note when considering donations is that amounts paid may clearly be in excess of the value of what is being provided by an academy. Any payment that is obligatory in order to receive the supply by the academy will likely be regarded as ‘business’ income. If an academy wishes the fundraising income it receives not to fall into the realms of business then it is important to ensure that donations and grant amounts received are distinguishable from the value of goods and services provided by a donor. If, for example, a grant does not make clear the proportion of the payment that is for the services received, the entire grant payment will be regarded as the consideration for the services the donor receives. Having established whether there
is a business activity and a supply, the academy then needs to consider what the treatment of its supply
Sponsorship income What the above means in practice is, firstly, that sponsorship income, for example, would contribute towards the VAT registration threshold. Sponsorship income received from a business that can recover VAT is usually a very good thing for charities as it helps to improve their recovery of overhead VAT, but that might not be the case for academies. Business income, whether taxable or exempt, will give non-VAT registered academies a VAT recovery issue on overhead VAT, because business-related VAT is irrecoverable from HMRC. And for VAT-registered academies, the presence of exempt income from fundraising would obviously have an impact on the ‘partial exemption’ calculation. The amount of VAT we are talking about should be relatively small, but the exposure of not registering at the appropriate time and charging VAT to a sponsor could be of concern. Let’s say that an academy receives
£1,000 from a local business towards a new whiteboard – in return, the business receives publicity on the school’s website, in newsletters and via social media. For a VAT- registered academy, VAT would be charged to the local business and if there was any VAT directly incurred in promoting the sponsor then this would be recoverable from HMRC
under the VAT return filing process. The purchase of the whiteboard
itself would relate to the non- business education and so the VAT incurred in that respect would also be recoverable. For a non-registered academy, this income might just push them over the registration threshold, but assuming not, no VAT would be charged (as the academy would not be registered). Any VAT incurred directly in promoting the sponsor would be, at least in part, irrecoverable, as business-related VAT incurred is not recoverable (unless registered for VAT). Overhead VAT would be affected slightly if the academy uses income as a method for calculating how much of its overhead VAT relates to business activities.
Grant funding Charities generally have difficulty in deciding on the treatment of grant funding. While core grants for education are non-business and fall outside the scope of VAT, a decision needs to be made for other sources of funding – whether they are seen as ‘grants’ or whether they may in fact be contracts for services. As with donations, the key
Rupert Moyle leads the VAT and Duty team at Kreston Reeves, a group of chartered accountants and financial advisers. Rupert has specialised in VAT for over 25 years and has experience across a variety of sectors including education. He advises on issues such as property transactions, partial recovery methods and reliefs from VAT. He is also experienced in handling negotiations with HMRC and appeals. For more information, go to
krestonreeves.com.
question is whether the grant giver expects something of substance in return for the grant of money. The fact that an agreement is termed a ‘grant’ or a ‘contract’ is not decisive; what is important is whether there is a reciprocal arrangement, or whether the grant giver benefits, perhaps by having one of its obligations discharged. Grants are outside the scope of VAT because the money is freely given, whereas contracts will either be taxable or exempt, depending on what is supplied to the grant giver. This, in turn, will affect the recovery position for VAT on expenditure. In plain terms, if a school receives a £40,000 grant from a foundation to renovate its science labs, this would fall outside the scope of VAT as the grant would be freely given, with the grant giver receiving nothing of substance in return. VAT for the education sector is
a complex subject and cannot be covered in detail here. We therefore recommend that you seek specialist professional advice.
FundEd SUMMER 2018 53
IMAGES: DGLIMAGES; WAVEBREAKMEDIA/
ISTOCKPHOTO.COM
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
