Do I register for VAT?

winegums

I help run a Community Interest Company which is limited by guarantee and is non-profit making but not a registered charity.

The company employs support/care workers to take people with a disability out so they can attend social events, discos, bowling, assist them with voluntary work placements, etc. The service users have been assessed by social workers as needing the service and they receive £10 per hour direct payments money for however many hours they have been awarded to pay for a carer.

My question is that last year our income was £73,900 in service costs, of which £62,000 was paid in wages, £8k+ was spent on safety equipment and equipment required for the disabled people to carry-out their routines and also office costs. The company had an overall profit of less than £1000 for the year.

A financial advisor has now told us that we are above the threshold for VAT and must register. As our charge is paid using money awarded by social services to pay for their care and we pay our staff £9 per hour including expenses, how would we pay VAT? Social Services certainly wouldn't pay any more so we couldn't expect to charge VAT to them and we can't run the service for any less so couldn't should the expense ourselves.

I phoned the VAT helpline and they suggested I try looking it up on the internet but I'm still none the wiser.

Anyone know how it works for welfare agencies?

kazwookie

http://www.hmrc.gov.uk/manuals/vatwelfare/vatwelf2180.htm

http://www.hmrc.gov.uk/vat/index.htm

The above may help you, other than that I suggest you contact the vat office again or a specilist vat accountant.

steve1980

winegums wrote: »

I help run a Community Interest Company which is limited by guarantee and is non-profit making but not a registered charity.

The company employs support/care workers to take people with a disability out so they can attend social events, discos, bowling, assist them with voluntary work placements, etc. The service users have been assessed by social workers as needing the service and they receive £10 per hour direct payments money for however many hours they have been awarded to pay for a carer.

My question is that last year our income was £73,900 in service costs, of which £62,000 was paid in wages, £8k+ was spent on safety equipment and equipment required for the disabled people to carry-out their routines and also office costs. The company had an overall profit of less than £1000 for the year.

A financial advisor has now told us that we are above the threshold for VAT and must register. As our charge is paid using money awarded by social services to pay for their care and we pay our staff £9 per hour including expenses, how would we pay VAT? Social Services certainly wouldn't pay any more so we couldn't expect to charge VAT to them and we can't run the service for any less so couldn't should the expense ourselves.

I phoned the VAT helpline and they suggested I try looking it up on the internet but I'm still none the wiser.

Anyone know how it works for welfare agencies?

You first say income was £73,900 and straight after you say costs. Two very different things!

Which is it, turnover or expenditure?

If the £73,900 is turnover then that's very unfortunate as you're £900 above the threashold.

winegums

steve1980 wrote: »

You first say income was £73,900 and straight after you say costs. Two very different things!

Which is it, turnover or expenditure?

If the £73,900 is turnover then that's very unfortunate as you're £900 above the threashold.

Sorry. To clarify - our total income last year was £73,900 and our total outgoings (wages, equipment, etc) was £72,800.

steve1980

VAT is payable if you exceed £73,000 turnover in a single year.

Cardinal-Red

Some thoughts on this:

1) Steve1980 isn't quite right - you are required to register for VAT if the value of your taxable supplies is over £73,000 this year. This is not the same as turnover. As eluded to elsewhere, if your supplies are exempt, then VAT registration need not be necessary even if you have over £73,000 of turnover.

2) Who pays you - is it the individual user of your service? Or is it the local authority? Local Authorities are able to recover VAT charged to them in discharging their obligations - so they won't care much if you charge them VAT. You might have an issue if your charge is made directly to the user - i.e. they receive their £10 an hour and choose how to spend it. But can you structure so that the supply is made directly to the LA in this case anyway?

3) Being VAT registered might not be a terrible thing - yes you charge VAT on your services, but you can also recover VAT charged to you - might these balance each other out such that you can actually "take the hit" of the VAT charged as your recovery is better.

4) Can you register as a charity - are you eligible. If so, your supplies may well be exempt anyway, regardless of who you supply them to.

5) Is "wages" the right word for it - are these people really your staff? Could you structure your activities so that the people doing the escorting get paid directly by the user/LA, and maybe pay you a small proportion for administering etc. This is likely to save costs all around (including NIC) as individually those people will not be registerable on a compulsory basis.

Hope you can sort this out - VAT is not meant to get in the way of what sounds like a great scheme.