SPFM+VAT+guidance+notes+for+government+departments-2C+19+November+2012

1.30 Overview of the penalties system PART 2 - Sales and the Treasury Taxing Direction PART 2 A - General Advice about Sales 2.1 What happens when my department sells goods and services

Guidance Notes for Government

Departments

Seventh edition

Issued: 19 July 2012

Guidance Notes for Government Departments

Seventh edition 2012

These guidance notes cancel and replace the 6th Edition last reissued andupdated in March 2009 They are designed to give a brief introduction to VATand the way in which it applies to Government Departments (GDs) They havebeen generally revised and updated and are primarily designed for VAT Liaison

Officers (VLOs) in GDs

Introduction

i How to use this guidance

ii Who should read this guidance?

iii Useful Notices

iv Use of tax advisors

v Do you have any comments?

PART 1 - An overview of VAT

VAT Liaison Officers

1.1 What are VAT Liaison Officers?

1.2 How do I keep up with changes in VAT?

1.3 How to tell us of changes

1.4 Who should I contact if I have a query?

1.5 I have a query, what sort of information do I need to provide?

1.6 How quickly will you deal with my query?

A basic Introduction to VAT

1.8 How does VAT affect GDs?

1.9 Is there a difference between VAT incurred in carrying out

statutory functions and VAT incurred in respect of other

‘supplies’ made by a department?

1.10 How does VAT work?

1.11 What are taxable supplies?

1.12 What is the difference between “Business” and “Non-Business”

activities?

1.13 How does “Business” apply to GDs?

1.14 I have heard that some supplies are “Exempt” from VAT What

does this mean?

1.15 I have heard the phrase “Outside the scope of VAT” What

does this mean?

1.16 When must VAT be accounted for and how?

1.17 What VAT can a GD recover?

1.18 What about VAT GDs and trading funds incur on making both

taxable and exempt supplies?

The Reverse Charge

1.19 What is the Reverse Charge?

1.20 How does the Reverse Charge Work?

1.21 What is the effect of the reverse charge?

Registration for VAT

1.22 When does a GD need to register for VAT?

1.23 Why aren’t GDs subject to the normal VAT registration rules?

1.24 How will HMRC register my department for VAT?

The VAT Return

1.25 How do I complete my VAT return?

1.26 Am I allowed to “Net Off”?

1.27 When should I recover and account for VAT?

1.28 How often should my VAT return be submitted?

1.29 How do I correct errors on VAT returns?

1.30 Overview of the penalties system

PART 2 - Sales and the Treasury Taxing Direction

PART 2 A - General Advice about Sales

2.1 What happens when my department sells goods and services

to other GDs and Executive Agencies?

2.2 What happens when my department sells goods and services

to Non-Departmental Public Bodies (NDPBs)?

2.3 What happens when an Executive Agency sells goods or

services to another GD?

2.4 What happens if a customer does not pay?

Supplies of Goods outside the UK

2.5 Which countries are included in the VAT territory of the EC?

2.6 What happens when I sell goods to customers based in

another European Community (EC) country?

2.7 What other documentation must I complete?

2.8 What are EC sales lists?

2.9 How often do I have to submit ESLs?

2.10 Where can I find out more information about completing my

2.15 What is place of supply?

2.16 What services are being supplied?

PART 2 B - The Treasury (Taxing) Direction

2.17 Recent Changes

2.18 What is the Treasury (Taxing) Direction and its purpose?

2.19 Where can I find the Direction?

2.20 How should output tax on such supplies be accounted for to

PART 3A - General Information about Purchases

3.1 Do any special rules apply when GDs purchase goods and

services?

3.2 How do I query whether a supply is correctly liable to VAT?

3.3 What happens if I purchase goods from countries outside the

EC?

3.4 What happens if I purchase goods from countries in the EC?

3.5 What happens if I buy services from countries outside the EC?

3.6 What happens if I buy services from inside the EC?

PART 3B The Treasury (Contracting Out) Direction

3.7 What is the purpose of the Contracting Out Direction?

3.8 What is refunded?

3.9 Where is the Direction published?

3.10 Can additional services be added to the Direction?

3.11 Who can claim refunds under the Direction?

3.12 How are such refunds made?

3.13 What activities are contained in the Contracting Out Direction?

3.14 Services agreed by HMT for inclusion in the next revision of

4.2.1 What is section 99 of the VAT Act?

4.2.2 Which Departments are eligible for refunds under section 99?

4.2.3 What can be recovered under section 99?

4.2.4 What is excluded from section 99?

4.3 GDNIs and purchases of cross border services

4.3.1

What happens if I buy services from suppliers which are treated as being supplied in the Republic Of Ireland?

PART 5 – Government Departments, Executive Agencies, Trading Funds and Non Departmental Public Bodies (NDPBs)

5.1 What is the definition of a GD?

5.2 What are Executive Agencies?

5.3 What is the VAT position of supplies between a separately

registered Executive Agency or Trading Fund and its parent GD?

5.4 Trading Funds

5.5 What happens when GDs become Executive Agencies or

Trading Funds?

5.6 Executive Non–Departmental Public Bodies (NDPBs)

5.7 What happens if a GD makes taxable supplies to an NDPB?

PART 6 - Reference Section.

Funding Advice Sheet 1

Supplies of Staff Sheet 2

Section 278 Agreements Advice Sheet 3

Land and Property Advice Sheet 4

Money Laundering Regulations Advice Sheet 5

VAT and flexible benefits for employees (Salary Sacrifice) Advice Sheet 6

Guidance feedback form

i Introduction

These guidance notes are designed to give you, the VAT Liaison Officers(VLO) in your department a brief introduction to VAT and the way itapplies to government departments The VAT Supply team of VATPolicy Division has produced these notes as we have policyresponsibility for the VAT affairs of GDs

The Government Departments Team located within HMRC’s ’PublicBodies Group (PBG) is responsible for compliance activity (whichincludes audits and advice) to the Government sector, which includesGDs, Trading Funds, Executive Agencies, Non Departmental PublicBodies (NDPBs) and associated entities

The guidance notes are divided into six parts:

Part 1 gives a basic background about the VAT system and how it

applies to GDs

Part 2 gives an explanation of how GDs’ sales should be treated for VAT

purposes and how The Treasury (Taxing) Direction applies to them

Part 3 deals with GDs’ queries about purchases and the Treasury

(Contracting Out) Direction

Part 4 provides information for GDs in Northern Ireland

Part 5 provides information for Executive Agencies and Trading Funds Part 6 provides additional detailed reference material on specific

activities that GDs may engage in The topics covered by the informationsheets may not apply to all GDs

The Annex - gives details of place of supply rules prior to 1 January

2010

[N.B Any reference to “Departments” or “GDs” in this guidance note should be taken to include all Crown Bodies covered by Section 41 of the VAT Act 1994, unless stated otherwise]

ii Who should read this guidance?

A Non-Departmental Public Body

(NDPB) or the parent department

of an NDPB

NDPBs are NOT Government Departments for VAT purposes However they are associated to aparent department

You should contact your Finance Team in your parent department for further advice on VAT issues

iii Useful Notices

We suggest you read these guidance notes in conjunction with Notice

700 ‘The VAT Guide’

You may also find it useful to consult the following VAT notices that arereferred to in this guidance Copies of the notices can be accessed viathe HM Revenue & Customs website at www.hmrc.gov.uk

Notice 700/12 Filling in your VAT return

Notice 700/18 Relief from VAT on Bad Debts

Notice 701/30 Education & Vocational Training

Notice 703 What happens if I buy services from suppliers

which are treated as being supplied in the Republic

Of Ireland?

Notice 723A Refunds of VAT in the European Community for EC

and Non-EC businessesNotice 725 The Single Market

Notice 741 Place of Supply of Services (before 1 January 2010)Notice 741A Place of Supply of Services from 1 January 2010Notice 742A Opting to tax land and buildings

If you are very new to VAT, you may find it useful to read through Notice 700/15, ‘The Ins and Outs of VAT’ The notice is primarily designed for

new VAT registered businesses, will give you a useful overview of howVAT works

You can find information about how to obtain copies of Notices inSection 1.4 of this guidance, Who should I contact if I have a query?

iv Use of tax advisors

The Treasury’s view of the use of Tax Advisors and Tax Avoidance isexplained in the Managing Public Money part of the HMT website;www.hm-treasury.gov.uk The view is expressed in section 4.2.4 of theHMT guidance

v Do you have any comments?

We would be pleased to receive any comments or suggestions you mayhave about this guide Please use the feedback form included at the end

of the guidance This feedback will help us to ensure that future editions

of this guidance are user friendly and informative

PART 1 - Overview of VAT

VAT Liaison Officers

1.1 Who are VAT Liaison Officers (VLOs)?

All GDs, separately VAT registered Executive Agencies or TradingFunds, must appoint a VLO As a VLO you fulfil an important andvaluable role as you act not only as the expert for your Department’sVAT affairs in general, but you will also be able to advise yourcolleagues on how to comply with the VAT requirements by ensuringthat:

(a) your department reclaims or pays the correct amount of VAT;

(b) the list of business activities in the annual Taxing Direction (see

Part 2B of these notes) is kept up to date and telling HMRC assoon as a change occurs;

(c) HMRC is made aware at an early stage of any Government

initiatives that GDs are planning or about to announce In manycases, this is because there are likely to be VAT implications thatcould impact on funding Therefore it is important that you alert us

to these issues so that they can be resolved at an early stage;and

(d) you act as contact point within your department and your Finance

Team for VAT enquiries We believe it is important that enquiries

to HMRC on VAT matters should come from you, or should havebeen discussed with you prior to contacting the GovernmentDepartments Team, as you will have accumulated a considerableamount of knowledge about how VAT affects your Departmentand the accounting systems that are involved This savesduplication of effort, minimises any misunderstandings andshould ensure a speedier service from us

1.2 How do I keep up with changes in VAT?

There are a number of methods of keeping up-to-date with

developments in VAT which are available from the HM Revenue & Customs website The address is www.hmrc.gov.uk

(a) VAT Notes - These are available electronically as they are issued on

quarterly basis They are particularly important as they flag upVAT changes as and when they occur

(b) Revenue and Customs Briefs - These give information on recent

significant VAT changes and can be accessed by clicking onwww.hmrc.gov.uk or the VAT reference material and updatessection at www.businesslinks.gov.uk

(c) VAT Notices - The full range is available via our website.

(d) VAT Guidance - This is available via our website and provides

detailed information on specific areas of VAT legislation

1.3 How to tell HMRC of changes

You will have a contact name, Customer Relationship Manager (CRM)

or Customer Co-ordinator within the Government Departments Team

You should inform them of any changes in circumstances that could

have an impact on your department’s VAT affairs This is because this

allows us to ensure that our records are kept up to date For example,

please let them know if your department…

 Changes its status - please refer to Part 5 of the guidance for

further details;

 Changes its name and/or address; or

 Appoints a new VLO - please write to the nominated contact point

shown in 1.4

1.4 Who should I contact if I have a query?

 Verification of your customers’ VAT

numbers

 General advice about Import & Export

procedures

 Advice about Treasury Directions

 Certificates of status of Taxable Person

(VAT 66s)

 Advice on completing your VAT return

and VAT 21

 Advice on correcting errors on your VAT

return and VAT 21

 Advice on GDs Option To Tax issues

 Information about pre and post

Customs clearances

 Assistance with VAT queries relating to

Non Departmental Public Bodies

(NDPBs) which your department

sponsors

Your nominated CRM orCustomer Co-ordinator withinthe Government DepartmentsTeam

 Information about the VAT liability of

supplies made to your department

Your supplier

 Changes to your department’s return

periods

 Changes to your bank details

 Changes to name or address details on

your VAT return

Debt Management & Banking,GABS Team

HM Revenue & Customs

7th Floor Alexander House

21 Victoria AvenueSouthend On Sea SS99 1AA(Copied to your CRM orCustomer Co-ordinator)

 Help or advice with on-line filing only The address in the box above

or alternatively ‘phone

01702 366328

1.5 I have a query, what sort of information do I need to provide?

You will need to provide the

following information…

For example…

 Your department’s name and

your contact details

 A summary of all the facts about

the transaction concerned,

together with copies of any

documents relating to the

particular transaction

 What is being supplied and why

 Who is making the supply

 Where you think the supply istaking place

 When you think the supply istaking place

 Copies of relevant documentationincluding copies of contracts/agreements / Memorandums ofUnderstanding etc

 Your opinion of the issuesreferring to HMRC information

 Areas of contention when yourequire clarification from HMRC

 Details of the VAT in question

 What you need a decision about For example:

 Whether an activity is a supply forVAT purposes;

 The VAT liability of a supply:

 whether your department iseligible to claim a refund of VATunder one of the Contracted outService Direction headings

 Please say if the matter is urgent  If you need to receive an answer

by a specific date, please say.This helps to prioritise replies.However please bear in mind that

if the matter is complex HMRCmay not be able to give a quickanswer, therefore it would beuseful if you could factor this inand make sure you contact theGovernment Department Team assoon as possible

Please refer to paragraph 1.6 for details of response times

 How you will use the decision  If you want to pass the reply on to

other GDs or businesses, as it will

be necessary to say if the advicehas wider applications We mayalso ask you to liaise with theother GDs or businesses toensure that they can confirm youare in possession of the full factsand are acting on their behalf

 Any previous correspondence on

the matter including the reference

 Only contacting HMRC at the last minute

 Forwarding long e-mail strings because these can make it

difficult for us to work out your problem, as the authors of some of

the text in a long email chain may not have intended it to be read by

someone outside your department As a result, the authors may

have assumed that the person reading their e-mail will be familiar

with the topic or policy to which they are referring, but this won’t be

obvious to us

 Using abbreviations, internal jargon or acronyms without explaining

them

1.6 How quickly will you deal with my query?

The Government Departments Team will aim to respond to written

enquiries within 30 working days of receipt However where this is not

possible we will advise you when a reply is likely to be issued Please

note, that we treat e-mail messages as written enquiries

A Basic Introduction to VAT

1.7 What is VAT?

VAT was introduced in the United Kingdom (UK) in 1973 It is a taxcharged on most supplies of goods and services made in the course ofbusiness in the UK by VAT registered businesses

1.8 How does VAT affect GDs?

VAT affects GDs because it will have an impact on the programmes

they deliver This is because government tends to deliver public servicesunder statutory powers to the public This means that the majority ofactivities undertaken by GDs are not usually supplies that are subject toVAT Therefore, as with the majority of VAT registered businesses, theycannot generally recover the VAT they may incur which relates to thesestatutory activities, except in limited circumstances discussed later in thisguidance – see Part 3

However, GDs can, and do, make supplies that are subject to VAT Thismay be because the function is not carried out under any particularstatutory requirement, or the activity may be deemed to be a businessactivity by the Treasury’s Taxing Direction – see Part 2B

Therefore, GDs must ensure that they have carefully considered the VATimplications in the funding arrangements of any programmes theydeliver, or plan to announce

1.9 Is there a difference between VAT incurred in carrying out statutory

functions and VAT incurred in respect of other ‘supplies’ made by a department?

Yes there is You must be able to differentiate, in your records, the VATyou have incurred in respect of non-business statutory activities, and theVAT you incur in respect of other ‘supplies’ the department makes, (i.e.goods sold or services provided for a charge) This distinction is veryimportant because it directly affects the overall amount of VAT thedepartment can recover (see 1.13 below)

1.10 How does VAT work?

If you make “Taxable Supplies”, in the course of “Business” you have

to account to HMRC for the VAT due This is called “Output Tax” and is

charged to your customers

With a few exceptions, VAT can be recovered on the purchase,

importation from outside the EC, or acquisition within the EC, of taxable

goods and services if these are to be directly used in connection with the

making of taxable supplies by your department This is called “Input

Tax” The exceptions are VAT incurred on business entertainment, and

in some cases, the VAT incurred on cars

1.11 What are Taxable Supplies?

All goods or services, which are subject to VAT, are called “Taxable

Supplies” and currently there are three rates of VAT

The Standard Rate (currently

20%) Most supplies of goods and services aresubject to this rate of VAT;

The Reduced Rate (currently

5%)

Supplies of:

- fuel and power to domestic users andcharities that satisfy certain tests, and

 installing energy saving materials

The Zero Rate ( 0%)  Most Food other than that supplied in the

course of catering,

 Newspapers & books,

 Young children’s clothing

 Certain supplies to and by charities.Although no VAT is charged such suppliesare still taxable but the rate of VAT charged

is 0%

1.12 What is the difference between “Business” and “Non-Business”

activities?

It is very important that you understand the difference between

“Business” and “Non-Business” activities:

By “Non-Business” we mean:

 Activities carried on for no consideration and which are excluded as

supplies within the VAT legislation

 Activities carried out by GDs under public statute which do not

apply to non-public bodies

By “Business” we mean:

 Activities falling within the Treasury’s Taxing Direction (see Part2B)

 Activities which do give rise to supplies of goods and services and

are not carried out under public statute

1.13 How does “Business” apply to GDs?

In the majority of cases, the activities carried out by GDs are statutory

in nature and are treated as non-business for VAT purposes Otheractivities which would ordinarily result in supplies of goods andservices for VAT purposes are regarded as outside the scope of VATwhen a GD does them under public law, unless this would significantlydistort competition

The Treasury (Taxing) Direction addresses the issue of competition.

If a GD supplies goods or services which are listed in the direction,these are always within the scope of VAT and taxed at the appropriaterate This direction is updated periodically Further details may befound in Part 2B of this guidance

1.14 I have heard that some supplies are “Exempt” from VAT What does

this mean?

Some supplies are “Exempt” from VAT These include, financial

services, such as banking transactions; many transactions in land andbuildings; and certain types of training and education

Exempt supplies must not be confused with zero-rated supplies In the

case of exempt supplies whilst no VAT is charged on the supply of suchgoods or services, there is no entitlement to recover Input Tax Whilst aVAT registered business does not have to charge tax on a zero-ratedsupply it may nevertheless, subject to the normal VAT rules, recoverInput Tax on VAT that it incurs in making those supplies

1.15 I have heard the phrase “Outside the Scope” of VAT, what does

this mean?

Certain supplies fall ‘Outside the Scope’ of VAT In summary, this

means that they do not fall within UK VAT legislation Typical “outsidethe scope” supplies are activities that are either funded by grants ordonations or activities GDs undertake in carrying out their statutoryfunctions (Please note that whilst these may be outside the scope forVAT purposes, they could be treated differently for other tax purposes.)Other outside the scope supplies will be where the place of supply isoutside the UK

1.16 When must VAT be accounted for and how?

VAT becomes due when a supply is treated as having taken place; this iscalled the tax point It is worth spending time to familiarise yourself withthe rules on “tax points”, which can be found in Notice 700 AlthoughVAT becomes due when the supply takes place, it only needs to beaccounted for to HMRC when the VAT return for that period becomes

due.

1.17 What VAT can a GD recover?

GDs cannot, under the normal rules, reclaim from HMRC the tax they incur on purchases relating to their non-business or exempt activities Treasury funding takes into account the levels of VAT that a GD is

unable to recover

VAT can only be recovered by GDs when:

 it is input tax incurred in the course of taxable business;

 it is input tax incurred on supplies that are outside the scope of VAT,but which would be taxable if they occurred in the UK;

 it is VAT that has been incurred in the course of contracting out thoseservices listed in the Treasury’s Contracting Out of ServicesDirections - see Part 3B

 VAT which has been accounted for under the reverse chargemechanism - see item 1.19 below

In all cases, proper evidence must be held to support the claim forma invoices are not tax invoices, even if the wording “Tax Invoice”appears, and cannot be used as evidence for Input Tax deduction

Pro-1.18 What about VAT GDs incur in making both taxable and exempt

GDs can reclaim the tax they incur on purchases directly relating totheir taxable business activities

In some instances VAT incurred on a GD’s purchases may relate toboth its business and non-business activities

It is important to identify these instances because if a GD undertakesboth business and non-business activities then it is unlikely to be able

to treat all the tax it incurs as input tax Any tax which relates:

 to goods or services obtained solely for the purposes of the

business activity, is input tax; and

 solely to the non-business activity is not input tax

Under VAT Act 1994 Section 24(5) the taxpayer is required to apportiontax so that only tax which relates to its business activities is treated asinput tax

Where, however, there is expenditure, which cannot be directlyattributed to business or non-business activities such as costs incurred

on overheads, this non-attributable expenditure must be apportioned in

a fair and reasonable way

GDs should note that the law does not specify any particular method bywhich they must apportion the VAT incurred Any method of doing somay be used provided that it results in a fair and reasonableapportionment of the tax bearing in mind the various activities and thepurposes for which the expenditure was incurred

1.19 What is the ‘reverse charge’?

Normally, the supplier of a service is the person who must account, tothe tax authorities, for any VAT due on the supply However, in certainsituations, it is the customer who must account for any VAT due.Although normally called the ‘reverse charge’ the procedure may also

be referred to as ‘tax shift’

The reverse charge applies to almost all “Business to Business”(“B2B”) supplies of services except those of a description in Schedule 9

of the VAT Act 1994 (Exemptions) It does not apply to land on whichthe option to tax has been exercised Reverse charge is not acomplicated accounting procedure Where it applies to services whichyou receive, you, the customer, must act as if you are both the supplierand the recipient of the services

1.20 How does the reverse charge work?

This depends on whether you have received the supply of services foryour non-business activities or your business supplies You simplycredit your VAT account with an amount of output tax, calculated on thefull value of the supply you have received, and at the same time debityour VAT account with the VAT you are entitled to recover if the service

is recoverable under the COS Direction (in the case of a non-businessactivity and the expense is included under the “COS” headings) or the

input tax to which you are entitled, in accordance with the normal

‘business’ rules You then include in the relevant boxes of your VATreturn:

 The amount of output tax in box 1 VAT due on sales

 The amount of VAT recoverable under the relevant COS heading(for non-business supplies) and the amount of input tax (these are

shown on the VAT 21 entered on-line) in box 4 VAT reclaimed on purchases

 The full value of the supply in box 6 total value of sales, and

 The full value of the supply in box 7 total value of purchases 1.21 What is the effect of the reverse charge?

In respect of a business supply, if you can attribute the input tax to a

taxable supply you can reclaim it all In respect of a non-business

activity, you can recover that amount which you can directly attribute to

a non-business activity and which the purchase falls under a COSheading

If you cannot do either of the above, the effect is to make you pay VAT

on the whole or part of the supply at the UK rate This puts you in thesame position as if you had received the supply from a UK supplierrather than from one outside the UK

The Reverse Charge is explained in more detail in Notice 741 and741A

Registration for VAT

1.22 When does a GD need to register for VAT?

All private sector traders who make taxable supplies that exceed aspecified annual amount are required to register for VAT with HMRC.GDs, however, are required to register for VAT regardless of the annualvalue of their taxable supplies

1.23 Why aren’t GDs subject to the normal VAT registration rules?

This is because they are part of the Crown Although certain GDs may

not undertake any business activities, they are able to claim a refund ofVAT on certain contracted-out services for non-business activitiesunder Section 41(3) of the VAT Act 1994, discussed in Part 3 of thesenotes If a GD is not registered, it will not be able to reclaim theserefunds

1.24 How will HMRC register my department for VAT?

When a GD registers for VAT, it is given a 3 digit number but will also beautomatically assigned a 9 digit number - which starts with 888

The 9 digit number is unique to the GD to which it is issued This number

must be shown on all tax invoices and correspondence relating to

taxable supplies made

Executive Agencies and Trading Funds are usually part of their parent

GD for VAT purposes, but further details may be found in Part 5 of thisguidance

You should inform us of any change of circumstances or activity thatcould affect a GD’s registration or distort the figures declared on VATreturns

GDs must use their 9 digit number on their VAT invoices When trading

with other EC Member States or importing/exporting goods they will begiven a separate VAT number which should be used in thesecircumstances This number must be prefixed with “GB” Confirmation

of GD VAT registration numbers may be obtained from the GovernmentDepartments Team

The VAT Return

1.25 How do I complete my VAT return?

From 1 April 2010, GDs are required to file their VAT 100 and VAT 21

online The first step to achieving this is to sign up and enrol for the VAT

for Government and NHS online service

The enrolment process is done only once and ensures the GD’s

confidential information is kept secure and can only be seen by it or

those it has authorised If you want more information on online security

and how to protect yourself and your organisation, go to

www.online.hmrc.gov.uk and click on the Online Security link in the

News element

You are only able to account for VAT and reclaim any relevant VAT that

relates to the entity/entities included within that registration

For GD purposes, note that the online VAT 21 has been designed in

such a way that VAT refundable under Treasury’s Contracting Out of

Services Direction is automatically transferred to Box 4 of VAT 100

Therefore, a GD’s VAT return should be completed as follows:

Box number What should be entered in the box

Box 1 Output Tax due on sales

Box 2 Any VAT due on acquisitions, (i.e goods acquired from other

EC Member States) which did not have VAT on them when purchased

Box 3 The total of Boxes 1 and 2

Box 4 The total VAT reclaimed for the period

This figure will be made up of Input Tax and /or refunds under the Treasury’s Contracting Out Direction The figure in Box 4 will match the figures you have entered into your VAT 21.Note that the acquisition tax declared in Box 2 may be recovered as input tax subject to normal VAT rules (i.e if the goods are for taxable business activities or Business to Business supply of services

Box 5 Take the figures in Boxes 3 and 4, deduct the smaller from

the larger and enter the difference in this box Box 6 VAT exclusive value of total standard rated, zero-rated and

exempt business supplies of goods and services

If you have made any supplies to the EC, these must be entered in Box 8 and Box 6

Box 7 VAT exclusive value of purchases of goods and services for

business activities

If you enter anything in Box 9, also include it in the Box 7 total

1.26 Am I allowed to “Net off”?

When calculating the figures for the VAT return, output and input tax on

individual transactions must not be “netted off” The figure for tax due in

Box 3 must be the total liability for output tax, with the figure in Box 4

showing the total claim for input tax and Section 41(3) refunds

You take the figures in Boxes 3 and 4, deduct the smaller from the largerand enter the difference in Box 5 This Box then shows the net sumwhich is due to HMRC, or which your department is claiming fromHMRC

1.27 When should I recover and account for VAT?

The general rule is that you should include any VAT you are entitled torecover on the current VAT return There are, however, special rules forclaiming this VAT at a later date

from contracted out

services that relate

However, you are able to include any VATadjustments (either in your favour or in HMRC’s)that were actually incurred during the pastfinancial year in the returns covering the firstthree months of the following year Thus, forexample, HMRC will consider a request toinclude on the return for the period 1 April to30.June, VAT incurred in February the samecalendar year

as the “Four Year Cap”

1 28 How often should my VAT return be submitted?

The normal accounting period is a calendar quarter Although you canask to submit monthly returns if you want

The online return Forms VAT 100 and 21 must be completed and

submitted within one calendar month of the end of the VAT period Forexample, for a VAT period ending on 31 March, HMRC must receive thecompleted VAT return on or before 30 April The relevant dates areshown at the top of Form VAT 100 when it is accessed online

If you require further information on the online facility, please contactyour CRM, Customer Co-ordinator, or DMB GABS in Southend

If a GD wants to submit monthly returns then you should contact yourCRM or Customer Co-ordinator within the Government DepartmentsTeam

1.29 How do I correct errors on VAT Returns?

If you discover an error on a VAT return after it has been submitted, youshould contact your CRM or Customer Co-ordinator within theGovernment Departments Team You can either:

(a) Give details of the errors in a letter, showing how the error aroseand what action you are taking to minimise this type of erroroccurring again

(b) complete a VAT 652 Form ‘Voluntary Disclosure of errors on VAT Returns’ Copies of the VAT 652 form can be downloaded

from the “forms and publications” section of the HM Revenue &Customs website However you will still need to explain how theerror arose and what action you are taking to minimise this type oferror occurring again

(c) adjust the amount on the next return if the error is of a suitable size

as given in Notice 700/45

Please remember that the covering letter or form 652 MUST give details

of the adjusted return period so that the Government Departments Team

is able to account for the error correctly for the relevant VAT return inquestion

Notice 700/45 contains more information about making adjustments on

your VAT return However; please note that the time scales mentioned

in section 4 of the notice should be 1 April 2011 for GDs, whereas 1 April

2009 is applicable for other VAT registrations

1.30 Overview of the penalties system

Legislation requires that all errors must be considered for penaltypurposes In order that the Government Departments Team candetermine the level of penalty applicable, it will need certain informationfrom you

You will need to be able to provide evidence to the GovernmentDepartments Team showing:

 how the error arose;

 what efforts were made at the time to ensure correct treatment wasapplied - including any advice sought;

 how you identified the error and to what VAT periods the errorrelates;

 how you calculated the error;

 what action has been taken since then to try and prevent the erroroccurring in the future?

If a penalty is applicable, the Government Departments Team will takeinto account the extent to which you have explained this to them.Further information about penalties will be provided to you at that time

PART 2 - Sales and The Treasury Taxing Directions

PART 2A - General Advice on Sales.

Supplies of goods and services in the UK

2.1 What happens when my department sells goods and services to

other GDs and Executive Agencies?

When a GD makes supplies of goods or services to another GD, with adifferent VAT number, this is a supply and VAT must be charged at theappropriate rate However, if a sale is made between parts of a GD, orbetween a GD and its executive agency using the same VAT number,this is not a supply for VAT purposes

2.2 What happens when my department sells goods and services to

Non–Departmental Public Bodies (NDPBs)?

If a GD makes taxable supplies to a NDPB, the NDPB must be treated

as an “ordinary” customer As many NDPBs do not undertake businessactivities, and are consequently not registered for VAT, they cannotrecover any VAT as Input Tax or under the Treasury (Contracting-out)Directions

2.3 What happens when an Executive Agency sells goods or services

to other GDs will be liable to VAT at the appropriate rate

b) Executive Agencies who are separately registered

An Executive Agency or Trading Fund which has been separatelyregistered for VAT must charge VAT on their standard and reduced ratedsupplies, including supplies to their parent GDs

2.4 What happens if a customer does not pay?

If your customer does not pay a VAT invoice, which you have issued for

a taxable supply made to them, your department may be able toreclaim relief from VAT as long as these meet the criteria for bad debts

You can find out more about this in VAT Notice 700/18 – “Relief From VAT On Bad Debts”.

Supplies of Goods outside the UK

2.5 Which countries are included in the VAT territory of the European

o France, including Monaco;

o Germany, except Busingen and the Isle of Heligoland;

o Greece;

o Hungary

o The Republic of Ireland;

o Italy, except the communes of Livigno and Campione d'Italia andthe Italian waters of Lake Lugano;

There are some "Special Territories" which are within the EC customsarea but outside the EC fiscal (VAT) area:

o Andorra;

o The Åland Islands (Finland);

o The Channel Islands;

o The Canary Islands (Spain);

o The overseas departments of France (Guadeloupe, Martinique,Reunion and French Guiana);

o Mount Athos (Greece)

Goods entering the UK from the "Special Territories", will be treated asimported goods, for VAT purposes

2.6 What happens when I sell goods to customers based in another

European Community (EC) country?

A GD can only zero-rate the supply of goods to a customer in another

EC Member State if:

 the EC customer's VAT registration number (with 2 letter countrycode prefix) is obtained and it is shown on the invoice; and

 the goods are delivered to a destination in another EC country; and

 valid commercial documentary evidence is obtained within threemonths of the date of supply, and held to show that the goods havebeen removed from the UK

2.7 What other documentation must I complete?

You must also complete EC Sales lists showing the zero-rated sales you have made to VAT registered businesses in the other Member States

2.8 What are EC Sales Lists (ESLs)?

Where VAT registrations, including Government Departments, makesupplies of goods to customers registered for VAT in other EC MemberStates they are required to complete and submit ESLs for these supplies

of goods and related services

From 1 January 2010, you are also required to complete ESLs for

intra-EC taxable supplies of services to which the reverse charge applies

2.9 How often do I have to submit ESLs?

ESLs can be submitted either monthly or quarterly depending on thenature of the supplies (i.e goods or services) and value of the suppliesexcluding VAT

You can submit ESLs either electronically using the ‘ECSL Service, or

by using the ESL Form VAT 101 HMRC issues VAT Form VAT 101 and101A if they are identified as having EC sales

2.10 Where can I find more information about completing my EC sales

list?

More information on EC Sales Lists is contained in VAT Notice 725

“The Single Market “and VAT Information Sheet 1/96 “Filling in your

EC Sales List Further guidance is also available in the ESL guidance

and in Revenue & Customs Briefs 53/08 and 02/09

2.11 What happens if my EC customer is not registered for tax?

If the EC customer is not registered for VAT, you must charge UK VATand treat it as a domestic sale It should not be recorded in Box 8

However, you must keep a record of supplies of goods despatched tonon-VAT registered customers in other EC Member States This isbecause you may become liable to the distance selling arrangements These arrangements state that if the value of sales to a particular ECMember State rises above that State's threshold for distance selling, theplace of supply becomes that of the other Member State, and you willbecome liable to register for VAT there You will have to contact theappropriate tax authority if registration is necessary

Notice 700/1 “Distance Selling” and Notice 725 “The Single Market”

give more information about distance selling arrangements

2.12 What is “Intrastat”?

“Intrastat” is the system for collecting statistics on the trade in goodsbetween EC Member States If a GD has a value of trade in goods ofeither arrivals or dispatches above a specified value “threshold”, they arerequired to submit further information on what are called SupplementaryDeclarations each month This arrangement and details of the

thresholds can be found in Notice 60 “Intrastat General Guide”.

2.13 How do I account for VAT on goods exported outside the EC?

When a GD exports goods outside the EC, the goods may only be zerorated if HMRC’s regulations in respect of proof of export, and any otherregulations which may be in force at the time, are adhered to

If a GD purchases goods it intends to export and takes physical delivery

of goods from the UK manufacturer or supplier in the UK, then it willhave to pay VAT to the manufacturer or supplier but will be able torecover this by adjusting its VAT account when the goods are exported,subject to the correct proof of export being held

Please refer to Notice 703 “Exports and Removal of goods from the UK” for more information

Supplies of Services

2.14 Services supplied within and outside the European Community

In order to determine the VAT treatment of services supplied tocustomers outside the UK, you will need to identify the place of supply

2.15 What is “Place of Supply”?

For VAT purposes, place of supply is the place where a supply is treated

as being made or supplied This is the place where the service will beliable to any VAT There are a number of rules which determine where

services of different kinds are made

This information can be found in:

 Notice 741 Place of supply of services (before 1 January 2010); and

 Notice 741A Place of supply of services – i.e after 1 January 2010

2.16 What services are being supplied?

It is essential that you think carefully about the nature of any servicesthat you supply (or receive) Sometimes a short hand or colloquialdescription will not reflect what is really being supplied You must have

a clear understanding of the nature of the services before you canidentify the appropriate place of supply rule

Part 2B - The Treasury (Taxing) Direction

2.17 Recent changes

Until 16 July 2012 inclusive section 41(2) of the VAT Act 1994 deemed supplies by GDs to be within the scope of VAT if they were of a type listed in a Treasury Direction (‘the Taxing direction’) These were

supplies which would be within the scope of VAT is supplied by other bodies, but were supplied by GDs under public law

2.17.1 From 17 July 2012 section 41(2) has been repealed and replaced by

section 41A of the VAT Act 1994, which has wider coverage in terms of the public bodies involved The principles are still the same and GDs

may, for the purposes of supplies by them to other persons, continue to

rely upon the former Taxing Direction as a guide However, the

question we encourage GDs to ask is whether the goods or services being supplied could also be supplied by non-public bodies, and thus GDs and these other bodies are in competition

2.17.2 The Taxing Direction remains in force for supplies between GDs This

may sound strange but the Taxing Direction was made under both section 41(2) (supplies by GDs in competition) and section 41(5)

(supplies by one GD to another) Section 41(5) has not been repealed This is further explained below

2.18 What is the Treasury (Taxing) Direction and its purpose?

The Taxing Direction originally did two things in respect of those bodiesincluded in list 1 of the Direction and now it does one:

(i) it applied VAT to certain supplies made by GDs to other persons which were made under public law provisions GDs often

carry out activities under specific statutory authority Normally a chargemade by a GD in connection with such an activity would not be subject

to VAT However, in certain cases, some services provided by GDs are,

or can, also be supplied by commercial businesses which would have

to apply the normal VAT rules To prevent any potential distortion ofcompetition, the Treasury could direct that such supplies be treated asbusiness when provided by GDs As mentioned in paragraph 2.18, theTaxing Direction is no longer in force for this purpose, but GDs maycontinue to rely upon it as a guide

ii) It continues to ensure that certain supplies made between GDs are taxed Under the normal rules VAT does not apply to supplies

made between GDs This is because the Crown is legally seen as asingle indivisible body and so any supplies between governmentdepartments are taking place within a single VAT entity Under thenormal VAT rules such transactions would not be taxable supplies.However, this causes problems when GDs make supplies of goods orservices which can also be obtained from businesses in the privatesector If GDs did not charge VAT on this type of supplies, they would

be undercutting the private sector and this would lead to “distortion ofcompetition” as GDs may be tempted to source goods and servicesfrom other GDs to save VAT To ensure that this does not happen, theTreasury has directed that certain specified activities must be treated

as business when supplied between GDs Effectively, it levels theplaying field by breaking government up into individual “businesses” forcertain activities, and prevents distortion of competition

It is important to note that the Taxing Direction sets out when theactivity must be treated as being by way of business, but it does notspecify the VAT liability which must be applied The list containssupplies which are standard rated, reduced rated, zero-rated andexempt from VAT It is therefore your responsibility to identify and applythe correct VAT liability For example, supplies of land may be exemptfrom VAT, but disposal of surplus office equipment is standard rated

2.19 Where can I find the Direction?

The Taxing Direction is published in the London, Edinburgh and BelfastGazettes You can find the Direction by going to the London Gazette’shomepage at www.london-gazette.co.uk and looking for Issues 58877 atpage 17363

The current edition of the Taxing Direction was published on 10November 2008

You are responsible for telling us of any changes in your Department’strading activities throughout the year, so that the Direction can beamended

2.20 How should Output Tax due on such supplies be accounted for to

HMRC?

Output tax due on such supplies should be accounted for on a VATreturn Details on how to complete a VAT return, can be found in Section1.25

2.21 What activities are contained in the Direction and how should they

be defined?

The Taxing Direction lists a number of activities that are deemed to be

business activities when undertaken by a Government Department

The table below shows the activities which appear in List 2 of the

Direction and gives examples of the types of activities which can fall

within the heading Please note that the examples shown are not

exhaustive If you are in any doubt about whether the supplies you are

making should be treated as business, please contact your CRM or

Customer Co-ordinator, providing all the details set out in section 1.5

Table showing the heading contained in list 2 of the Taxing Direction

with examples of activities which fall within them

Heading as it appears in the

Accommodation, including

property acquisition and disposal

and any related services

Letting office spaceLetting land

Sales of government buildingsPurchase of land or buildingsAdministration services

Admission to premises and to

events, e.g entertainments, air

displays etc

Open days where an admission charge

is payable

Guided toursFireworks displaysConcerts

Advertising or publicity services Provision of advertising space in a

publication Charges for distributing advertising material

Attendance of staff at court or any

similar place

Where a civil servant attends court in the UK as an expert witness and a charge is made for their professional services

Bankruptcies and insolvency

Concessions for catering or other

services

Granting a licence to a caterer to occupy a specific kitchen and restaurant area even if the grant includes the use of kitchen or catering equipment

Conferences, exhibitions and any

related facilities or services

Organisation of conferences, symposia and seminars

Organisation of exhibitions and displaysProvision of lectures and speakers

Construction, alteration,

demolition, repair or maintenance

work, civil engineering work, any

related services or goods

Contract or procurement services Negotiating bulk contracts

Copying or supply of any

reproductions or of any documents

Charges made for providing copies of official document to insurance

companies, solicitors etcCopyright, patents or licences to

manufacture

Granting a licence to use computer software

Allowing use of logos or insignia

Delivery or distribution services

Drainage work

Electronic transfer of data These are often referred to as “digitised

products”

Photographs/ videosDownloading computer software Transfer of electronic journalsExport of goods and related

services

Preparation of export documentation.Use of freight containers

Storage of goods prior to export

Filming, replay or recording

services

Financial and any related services Operation of current, deposit & savings

accountsAdministration, payment of salaries andwages

Deductions from employees’ pay for insurance premiums or in compliance with an attachment of earnings order.Mortgage repayments, Union

Subscriptions

Safe custody and safe transportation services

Fishing licences or permits Right to take fish from land

Fire service assistance

Freight transport Includes any transport by road, sea or

airFuel and power Supplies of fuels for domestic use

Supplies of hot water including steam.Government car service

Grant or assignment or surrender

of any interest in or right over land,

or of any licence to do anything in

relation to land

Right to park vehicles in a car park or garage

Provision of storage for bicycles

Right to take game or fish from land Mooring charges

Grazing rightsGrant of a right to inspect records

Goods, including goods

manufactured within a Government

department and sold to its staff and

to other customers, stores, surplus

or other equipment

The sale or disposal of any capitalised asset, including vehicles, computers, and furniture, regardless of whether anyInput VAT was recovered on the originalpurchase

Grave maintenance Maintaining commemorative

headstones & plaques

Planting trees, shrubs & rosebushes

Maintaining footpathsMaintaining fencesPlanting trees, shrubs & rosebushesHairdressing Of the sort provided in hospitals,

prisons or the armed forces

above

Hire of vehicles, machinery or

equipment, with or without

operator or crew

Charges for the attendance of ambulances at sporting and similar events, where the package is comprised of crewed ambulances and supporting medical staff

Hydrographic, cartographic and

similar services Topographical surveys

Information or statistical services Please note that charges made for the

provision of information requested under the Freedom Of Information Act

2000 is not treated as being a taxable supply provided that the information canonly be provided by your department and is not available from any other source

Inspection services

Laboratory services including

analysis and testing of any

substance

Laundry services Washing and laundering uniforms,

clothing and bed linen

Licensing, certification,

authorisation or the granting of any

rights other than rights over land

Crown CopyrightSoftware licences

Manufacturing, assembling and

other services

Medical services Care, diagnosis, treatment or

assessment of patients Membership subscriptions

Meteorological and related

services

Provision of weather forecasts Provision of data relating to weather/ climate change

Use of computer modelling to simulate weather conditions or climate change Mineral or prospecting rights

Refrigeration of bodies before post mortem

Nursery and day-care facilities

Occupational health services

Passenger transport Transport to, from or within a place of

historic interest if you also supply the right to admission

Payroll and pension administration

Pest or animal control Laying poison

QuarantinePhotocopying services Charges made for providing copies of

official documents to insurance companies, solicitors etc Photographic services

Port, airport or harbour services

and related goods

Piloting /Towage servicesStorage services in a portLoading and unloading in a port, land adjacent to a port, transit shed, airport

Postal, packing or distribution

services

Franking servicesPostage and distribution charges Professional services, including

those of any manager, adviser,

expert, specialist or consultant

Please refer to the Advice Sheet on supplies of staff in the reference section

of this guidance

Stationery items e.g business cards, envelopes, calendars, letterheads, questionnaires

CDs, DVDs, audio and video cassettes Supplies of books, pamphlets, journals and periodicals

Radio or communication services Does not include the issue of statutory

licencesRecruitment services Interviewing

Security vettingResearch, testing,

experimentation, sampling or other

related laboratory services

Repair or maintenance of

machinery, equipment or other

goods

Secondment of staff where such

services could also be obtained

from the private sector

Please refer to the supplies of staff advice sheet in the reference section

Secretarial services Typing services

Minute taking Transcription services Security services and related

goods

Provision of security guards Installation of security systems – door key pads, CCTV, security lighting etc Shipping services Preparation of import / export

documentationAllowing use of freight containers whichbelong to you

Slaughter, rendering and disposal

of animals

Social services

Statistical services, including the

collection, preparation and

processing of data

Storage facilities and related

services

Telecommunications Allowing someone else to use a

telecommunications mast that belongs

to you Also, please see information relating to electronic transfer of data.Training, tuition or education and

any related services or goods

Supplies of training materials Provision of training courses e.g First Aid, Lectures, Seminars

Transfer of milk quota leases

Translation services Supply of oral interpreters

Written translation Tree planting and afforestation Forest Management – e.g thinning out Vehicle conversions

Vehicle servicing and maintenance Mechanics’ services

Provision of MOT testsVerification of particulars of births,

marriages or deaths

Providing duplicate copies of birth, death or marriage certificatesConfirming information on application forms and other official forms

Waste disposal Incineration of waste products

Allowing someone else to use your incineration facilities

Removal of waste that cannot be discharged into the sewers

Ordinary water supplied in bottles as a drought alleviation or other emergency measure

Supply of distilled or deionised water and water of similar purity

Supply of water for an industrial activity.Weighbridge services

Part 3 - Purchases and the Treasury Contracting Out Direction

Part 3A General Information about purchases

3.1 Do any special rules apply when GDs purchase goods and

services?

No special rules apply when goods and services are purchased byGDs If the good or service is subject to VAT, then a VAT-registeredsupplier will charge you VAT

3.2 How do I query whether a supply is correctly liable to VAT?

As it is the legal responsibility of VAT registered traders to decide thetax liability of the supplies they make, you must ensure that whenseeking tenders or placing orders, suppliers are not pressured, orasked to describe their supplies in such a way as to avoid the propertax liability

Where you wish to query a liability, you should ask the supplier toobtain a written ruling from HMRC Only if there is a dispute should youshould seek advice from us In such circumstances, it will be necessary

to provide the full details of the supplies involved, the name andaddress of the supplier and copies of contracts and other documents toenable the issue to be fully reviewed

If special arrangements are necessary, e.g for security or diplomaticreasons, you should consult your CRM or Customer Co-ordinator

3.4 What happens if I purchase goods from countries in the EC?

Receipts of goods from other EC Member States are termedacquisitions GDs are liable to pay VAT on acquisitions at the rateapplicable in the UK, although the mechanism for paying this VAT toHMRC is not the same as that for imports from non-EC Member States

When acquiring goods from other EC Member States as the customer a

GD should give its VAT registration number to the supplier in order toreceive the supply of goods VAT-free On acquisition of the goods in the

UK however, VAT must be accounted for at the rate applicable to the

supply of goods in the UK This is known as “Acquisition Tax “ When

completing a VAT return, the Acquisition Tax should be inserted in Box 2(which is added to Box 1 to make Box 3 Total VAT due) and the value ofthe goods entered in Boxes 7 and 9

VAT Notice 725 “The Single Market” explains the procedure in detail.

Supplies of services

3.5 What happens if I buy services from suppliers based outside the

UK that are subject to the B2B General rule?

a) You must quote your 9 digit VAT registration number (not the onestarting 888) to your supplier The supplier will then zero-rate theirsupply to you

b) You must then credit your VAT return with the amount of output taxcalculated on the full value of the supply you have received

c) If the supply of services are directly attributable to your

department’s taxable activities, debit your VAT return with the input

tax that you are entitled to recover

a) Services supplied as part of your department’s business activities

If the services is treated as being taxable in

i) Another EC Member State and it is received for business purposes, you may claim a refund of the VAT paid by using the 8ThDirective Refund Procedures, as long as you are not registered forVAT in that Member State Claims for refunds should be made usingthe new electronic refund procedures You can access the servicesthrough the HMRC VAT online services webpage A separate online