Charity preschool and VAT

Rich44_2

Hi

We're a registered charity and local preschool. We're registered with OFSTED and most of our funds come from the government funded places for 3+ year olds with a bit of cash from the unfunded younger kids.

Anyway I was looking into VAT registration and can't seem to find a definitive answer (why am I not surprised?) Our turnover last year was only £27k but I was wondering about registering in order to be able to claim VAT back on our VATable expenditure.

I understand from reading around that Nursery education fees are regarded as VAT exempt so it won't affect our parents that way but would that then mean we couldn't claim back the VAT we spend out making the whole process pointless?

In short if we register can we end up claiming back the VAT we've spent out on buying in equipment etc or am I barking up the wrong tree? I know that state schools get all their VAT back (as I work in one) but unsure about any benefit of VAT registration for us.

I only took over as treasurer this week so it's all kind of blowing my mind (and I don't get paid as it's a voluntary role sigh lol)

InsideInsurance

As your only product/ service is VAT exempt you cannot register for VAT as far as I am aware: http://www.hmrc.gov.uk/vat/managing/reclaiming/partial-exemption.htm

JasonLVC

As you correctly note, you are making supplies of education and so these are exempt supplies when made by an eligible body which would be a state funded scool or not-for-profit charity like yourself.

If your only income is exempt, you have no right in law to register for VAT and so HMRC will actually reject your application, becuase you can only register for VAT if you make 'taxable' supplies. Taxable supplies are supplies where you charge VAT on top.

The only way you could register for VAT is if you make ancillary/additional sales which are not exempt or related to education, such as charging for car parking (20%) or sale of uniforms (0%).

Even if you could do that, you would only be able to reclaim the VAT on purchases that relate to those extra things, so if you resurfaced the carpark and charged people to park there you could get the VAT back on the resurfacing job, but not on your general overheads or anything else not connected to the car park.

Most state schools are funded by the LEA and so their expenditure falls uner s33 which allows LA's to reclaim VAt on their statutory duties....such as providing education.

You do not have that luxury and so I'm afraid that for you, your VAT is irrecoverable and just another cost to the business. You cannot charge VAT on your supplies of education either as education is strictly an exempt supply.

Any other VAT queries then let me know.

JasonLVC

If you cannot reclaim VAT then next best thing is to choose your suppliers wisely. For small building repairs try to use non-registered traders.

When buying in food, make sure as much of it is zero rated as possible (raw foods, milk, meat, etc).

If you have a contract to have your commercial waste disposed of, try using the Council as they will not charge VAT to you whereas a private firm like Viola will.

If your premises are rented and the landlord charges VAT, write to him and ask for the Option to tax be disapplied on the basis you are an eligible body making non-business supplies, the landlord will have to accept this and stop charging you VAT.

Finally, write to the utility providers and tell them you are a charity with non-business activities and they will charge VAT at the domestic rate of 5% instead of the commercial rate of 20%.

Non-Business means you do not make a charge for your services and receive your funding via grants or donations.

There, probably just saved you a small fortune, welcome to MoneySaving Expert.com:money:

pleasedelete

You should be able to buy supplies vat free from an educational provider. There are a number who sell to voluntary sector pre schools. Some voluntary providers also order through their local primary and reimburse them.

Rich44_2

Thanks for the ideas one and all, we don't have any other charges we can levy so that's a bust. It's a shame as we're state funded like schools but don't get the VAT exemption that they get. My main thing was buying educational equipment, IT, toys etc just placed an order and £60 of it was VAT. Haven't managed to find anyone who will supply VAT free for us and I don't think the local school will go for it so will just have to bite the bullet and keep paying it and fund raising.

Was worth looking into but you've pretty much confirmed my thoughts on the matter.

Ta

On the plus side since me and the wife got involved (not saying it's our influence but just timewise) the place has been turned from loss making to managing a very very small "profit" which is ploughed back in anyway

Cardinal-Red

Are you linked in any way with your Local Authority - for example, do they give you any grants / assist you in any way?

In respect of JasonLVC's comments - and some fantastic ones in there - do you consider the supply of paid for nursery places to be a non-business activity of a charity?

JasonLVC

Cardinal-Red wrote: »

In respect of JasonLVC's comments - and some fantastic ones in there - do you consider the supply of paid for nursery places to be a non-business activity of a charity?

The cases of Yarborough Childrens Trust and St Paul Community established that a charity could be 'in business' as such, but be making non-business supplies for VAT purposes(!?).

There is a strong argument that if the charity receives funding for the places it provides then this may be a grant which would likely be outside the scope of VAT (and treated as non-business if within a partial exemption calc), but clearly there's not enough facts to make a proper decision.

The poster alludes to some palces being paid for by parents directly and these could either be exempt or non-business depending upon the charges made to the parent (but in reality, most likely will be exempt business).

You'll know the definition of a grant is somewhat obtuse and relates to whether the funder receives a direct or indirect benefit. An alternative is the funding is seen as exempt (business) on the basis it is coming from the LEA and when delviered by an eligible body falls under the education exemption.

The non-business part of my post mostly related to the utility supplies element and the disapplication of the option to tax. The stuff about council waste contracts is open to any organisation, regardless of their status or activity.

crazyguy

I supply Schools with products that are chargable with VAT and each and everyone of them claims the VAT back, so there is a way round this in education I suggest you ring the tax office and discuss it with them as you should be able to claim all of your VAT that was paid back.

JasonLVC

crazyguy wrote: »

I supply Schools with products that are chargable with VAT and each and everyone of them claims the VAT back, so there is a way round this in education I suggest you ring the tax office and discuss it with them as you should be able to claim all of your VAT that was paid back.

Only schools funded by the LEA can reclaim their VAT via s.33 of the VAT legislation.

You likely sell mainly to state schools and colleges.

A charity run activity will not have the same rights as a state funded school, nor will a fee charging private school - the supply of that education will be exempt (or non-business) and therefore blocks ability to reclaim input tax.

Cardinal-Red

Very interesting thanks Jason. I think it matters little as you say... it's either non business or exempt business... neither are good for input tax recovery!!

Two quick things to add...

I have seen HMRC deny disapplication of the option to tax where the lease has started. Their guidance states tenant must inform landlord before supplies are made.

Of course the law doesn't say this... and there's an argument of a supply happening each time rent is paid... and this specific example was a blatant attempt at evasion but still worth being aware of.

Secondly I asked about LA grants specifically in regard to the council supporting charities rather than paying for the childcare. Some councils are prepared to purchase goods and services on behalf of their VAT sensitive recipients and gift them away... input tax recovery for the LA and lower costs for the charity.