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VAT

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I don’t want any political comments, just interested in the mechanism.

Say I was the bursar of a public school, and have now got to pay (collect ) VAT on fees. Like any other VAT registered business , I can offset some of that cost against various expenses that attract VAT?
Or was I able to do this previously?
 
Further, they are apparently now able to reclaim VAT on capital projects from the last 10 years. This will obviously favour those schools who have spent money on extensions etc.
 
Mike G said:
Further, they are apparently now able to reclaim VAT on capital projects from the last 10 years. This will obviously favour those schools who have spent money on extensions etc.
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The wonderful "capital goods scheme". I worked in the tax world for 20+ years and never really got to grips with VAT. I knew just enough to know when I was out of my depth!
 
Lurker said:
I don’t want any political comments, just interested in the mechanism.

Say I was the bursar of a public school, and have now got to pay (collect ) VAT on fees. Like any other VAT registered business , I can offset some of that cost against various expenses that attract VAT?
Or was I able to do this previously?
Click to expand...
The short, very simplified version is: if you're a VAT registered business, you add VAT to any in-scope goods or services that you sell. Your accountants make a note of how much VAT you've received in this way. You then add up the total amount of VAT that you've paid to other companies for the goods and services that enabled you to sell what you did. You subtract this from the amount you received, and that's what you pay to HMRC.

Whether you were able to do this previously depends, again in very simplified terms, on whether the services you provide were zero rated (VAT is chargeable, but at 0%, and you can reclaim VAT on what went into it) or exempt from VAT (VAT is not assessed at all and you can't reclaim). I believe school fees used to be exempt entirely, but don't quote me on that.

If something changes from zero rated to standard rated, then the price to the consumer will very likely have to go up by the full 20%, because the supplier was already reclaiming the VAT on their costs. If something is brought into the scope of VAT that was previously excluded completely, then the associated costs of providing it essentially drop because it becomes possible to reclaim the VAT on expenses where it wasn't previously. In this case, if only the added costs are being passed to the consumer, it'll go up by 20% of the company's profit margin on those services, not 20% of the full price.
 
spb said:
The short, very simplified version is: if you're a VAT registered business, you add VAT to any in-scope goods or services that you sell. Your accountants make a note of how much VAT you've received in this way. You then add up the total amount of VAT that you've paid to other companies for the goods and services that enabled you to sell what you did. You subtract this from the amount you received, and that's what you pay to HMRC.

Whether you were able to do this previously depends, again in very simplified terms, on whether the services you provide were zero rated (VAT is chargeable, but at 0%, and you can reclaim VAT on what went into it) or exempt from VAT (VAT is not assessed at all and you can't reclaim). I believe school fees used to be exempt entirely, but don't quote me on that.

If something changes from zero rated to standard rated, then the price to the consumer will very likely have to go up by the full 20%, because the supplier was already reclaiming the VAT on their costs. If something is brought into the scope of VAT that was previously excluded completely, then the associated costs of providing it essentially drop because it becomes possible to reclaim the VAT on expenses where it wasn't previously. In this case, if only the added costs are being passed to the consumer, it'll go up by 20% of the company's profit margin on those services, not 20% of the full price.
Click to expand...

Good post.

Our Receiver (SARS) VAT is all online, submissions and claims.
Seems to be working. They keep on tightening the net around the 'chancers'.
Their web site is also full of PDF documents explaining various taxes.

My personal tax is also online, all the companies where I invest or derive any income automatically is uploaded. the only additional information I would load is medical expenses.
 
Speaking also as an ex finance pro, the administrative burden is making sure you collect records on absolutely everything that has input tax so that you maximise your set off against the output tax charged on the school fees. Some careful attention to timing may also be pertinent.
 
30 years ago, when I was VAT registered, I kept my books on a little system that I wrote in VBA using Microsoft Access. It was not sophisticated, as was I.
Each quarter, I pressed a button, the system read all my inputs and outputs and presented me with a screen that looked exactly like the paper VAT return in front of me. It took me all of ten minutes to access the data, fill in the appropriate form, white a cheque and put it in an envelope with a stamp on it. It could not have been easier.
The only problem I ever had was when I accidentally entered a figure as 999.99 instead of 99.99. I was then a simple case of making a voluntary declaration, paying the extra, no questions asked. Fantastic.
 
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PS I wouldn't have a clue where to start coding that today, it was a previous life and I have lost, entirely, all those skill. But I was proud of it at the time. A friend of mine, who was a professional software engineer, said that I could sell it as a system. I thought he was joking. But looking back, I think it was just one more missed opportunity.
God, I have so many regrets, about so many things. And life is so short.
S
 
the maths is as above - however it will vary for every business...
at its simplest - a business making a widget:
- all the components for the widget cost £10 + £2 VAT
- the widget is sold at £20 + £4 VAT
the business is a tax collector for HMRC so collects £4 VAT from the punter, but pays out £2 VAT for the components, so collects the £2 difference for HMRC. That £2 is the VAT on the difference between cost and retail - i.e. the mark-up so you are paying tax on the value-add (your additional £10 over cost) = VAT value-add tax.

Where it gets more complex is a) the various exclusions / exemptions and different rates and b) the type of business and the make up of its costs...
If a school was a robotic manufacturing plant then the VAT element would only be on the profit and schools don't make much profit, so there would be little VAT - however, a schools biggest cost (and you get back the VAT on costs) is staffing at c. 80% of budget, but staffing has no VAT as it is salary, so nothing there to reclaim on c. 80% of your costs - so that means there is a starting disadvantage in that you have to charge VAT on the full fees, but a lot of your costs don't allow you to reclaim VAT - which is why schools are passing the majority / all of the VAT across to parents.

Building works in the past 10 years will help offset that for now, but long term that advantage will go
 
It will be interesting to see if private schools adopt a different staff model to deal with this. Many private schools have a lot of part time teachers dealing with extra curricular subjects that they generally do far better than the state sector. Music, art, drama, dance, technology being examples, along with some of the sports teachers. In many cases the teachers work for the school part time and could switch to an IR35 model if they have professional engagements as well, or are "shared" between more than one school. In some cases the prep and senior schools are separate businesses , which may create an opportunity.
 
AJB Temple said:
It will be interesting to see if private schools adopt a different staff model to deal with this. Many private schools have a lot of part time teachers dealing with extra curricular subjects that they generally do far better than the state sector. Music, art, drama, dance, technology being examples, along with some of the sports teachers. In many cases the teachers work for the school part time and could switch to an IR35 model if they have professional engagements as well, or are "shared" between more than one school. In some cases the prep and senior schools are separate businesses , which may create an opportunity.
Click to expand...
Even if they did - very few would hit VAT limits, so would charge without VAT
So the school would still pay out and not have anything to reclaim...
If they went above that limit, they would simply charge now plus VAT - i.e. extra, so the reclaim would take the school back to where they were anyway...

The only advantage a school gains is where they were already paying VAT and can now reclaim it - e.g. electrics / gas / hardware / etc.
 
Yes Alasdair. I am thinking really of a particular example where the musician in question already earns far above the VAT threshold. But I agree with your point.

Luckily mine are above school age so such things are behind me.
 
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