VAT Update
HM Revenue & Customs (HMRC) has updated its guidance on Independent Schools and VAT.
The most significant change seems to be the acknowledgement by HMRC that contrary to their earlier position, they now accept that it is possible to recover VAT on services incurred in the six months prior to registration which continue to be used after registration in making taxable supplies.
This is now in line with the guidance they had previously issued relating to VAT on goods bought prior to registration where they allowed apportionment, and with the advice we have been providing which said their position was at odds with the guidance that existed prior to the introduction of VAT.
Autumn term invoices
Schools will be starting to consider issuing invoices for next term over the coming weeks. This is just a reminder that a tax point is created at the earlier of the date of issue of a VAT invoice, the receipt of payment, or the point at which services are delivered.
If schools issue a full VAT invoice then the VAT on that must be declared in the return period in which it is issued and the net value of the sale will go into the partial exemption calculation for both that period and the annual (longer period) adjustment for the tax year in which that VAT return falls.
If a school has a tax year ending July and issues VAT invoices in June or July then the school may not have received payment of all of its fees at the point at which the VAT return is due to be submitted (7 September or the business day before that if the 7th falls on a weekend).
It is possible to issue an invoice which omits some of the details a VAT invoice is required to contain, and which would therefore not be a VAT invoice, and would therefore not set a tax point.
This is most commonly done by omitting the VAT registration number, but can be done in other ways and this would then push the tax point back to the earlier of the date of receipt of payment, or the VAT return in which the autumn term commences.
Guidance and support
Schools should review HMRC’s updated VAT guidance and consider the implications for VAT recovery and invoicing ahead of the autumn term. Take this opportunity to align your invoicing practices with the latest rules, particularly around tax points, to ensure compliance and optimise VAT recovery. Reach out to me, Phil Salmon, Partner and Co-Head of VAT, or your usual HaysMac contract for further advice on any of the above.
