Quick VAT question
Discussion
I am helping to run my local cricket club, it's a limited company and is VAT registered. We are in the process of putting together a budget for 2025 and want to lease some new maintenance equipment, the treasurer insists we can't claim the VAT back on any leased equipment, but can't explain why, I'm pretty certain that VAT is reclaimable on any leased equipment. Any advice appreciated.
Countdown said:
The only thing I can think of is that If you’re only making VAT exempt supplies you can’t recover VAT on your inputs.
It’s a limited company and registered for VAT, they reclaim on food and beverage but the treasurer thinks they can’t reclaim the VAT element on leased equipment. I don’t get it but thanks for your response, I’ll speak to an accountant friend. Blue62 said:
Countdown said:
The only thing I can think of is that If you’re only making VAT exempt supplies you can’t recover VAT on your inputs.
It’s a limited company and registered for VAT, they reclaim on food and beverage but the treasurer thinks they can’t reclaim the VAT element on leased equipment. I don’t get it but thanks for your response, I’ll speak to an accountant friend. Is the stuff which you are going to lease going to be used for making VAT'able sales?
Countdown said:
My guess is they're charging VAT on the F&B sales ("Output VAT), which means they can reclaim VAT on the related purchases ("Input VAT")
Is the stuff which you are going to lease going to be used for making VAT'able sales?
No it’s ground keeping equipment, a new mower and other stuff that for cash flow reasons we want to lease. I don’t understand why we wouldn’t be able to reclaim the VAT, in the same way any business would. The treasurer is suggesting it’s something to go with the fact it’s a sports business, I’ve researched and found nothing. Is the stuff which you are going to lease going to be used for making VAT'able sales?
Blue62 said:
No it’s ground keeping equipment, a new mower and other stuff that for cash flow reasons we want to lease. I don’t understand why we wouldn’t be able to reclaim the VAT, in the same way any business would. The treasurer is suggesting it’s something to go with the fact it’s a sports business, I’ve researched and found nothing.
What does the business “do”? Whatever it sells, do you charge VAT on the sales?To give an example; I’m the treasurer of a charity. We get donations that we use to pay our running costs. We can’t reclaim the VAT on our purchases because we don’t charge VAT on donations. (In fact we actually reclaim gift aid)
Edited by Countdown on Monday 16th September 22:29
Blue62 said:
It’s a cricket club, but a limited company and obviously registered. Sales are entrance fees and bar/food so I’m struggling to understand why equipment and hardware wouldn’t qualify.
Are you charging VAT on the tickets? You’ve already said you’re reclaiming the VAT on the bar food so you must be charging VAT on the food/ drink sales income.You can only reclaim VAT on inputs where you are making VAT-rated supplies. If you’re making VAT exempt supplies you can’t reclaim the input VAT
Blue62 said:
It’s a cricket club, but a limited company and obviously registered. Sales are entrance fees and bar/food so I’m struggling to understand why equipment and hardware wouldn’t qualify.
The "supply" of Sport/Cricket is an exempt supply so you can't claim input tax relating to that supply: https://www.gov.uk/guidance/sport-supplies-that-ar...
Thanks for responses, I’m going to speak to an accountant friend but appreciate how this becomes ever more complex. The issue is recovering VAT on leased equipment, which would obviously be attractive to a cash strapped sports club. VAT is not charged on ticket sales, but it is on bar and food, I think we may be stuffed based on responses. Thanks again.
Blue62 said:
Thanks for responses, I’m going to speak to an accountant friend but appreciate how this becomes ever more complex. The issue is recovering VAT on leased equipment, which would obviously be attractive to a cash strapped sports club. VAT is not charged on ticket sales, but it is on bar and food, I think we may be stuffed based on responses. Thanks again.
Make a novelty bar that serves the drinks to the table using the mower. Problem solved!Blue62 said:
It’s a cricket club, but a limited company and obviously registered. Sales are entrance fees and bar/food so I’m struggling to understand why equipment and hardware wouldn’t qualify.
No "obvious" about it. VAT has nothing to do with the nature of the business (limited company, charity, partnership, sole trader etc).It's to do with
a) nature of turnover
b) whether the turnover exceeds the VAT registration threshold
If the turnover is of a VATable nature (including sales chargeable at Zero % VAT) the entity should register for VAT.
If the turnover is below the threshold, there is no need to register.
Do not confue "Exempt" with "Zero Rate". They are not the same.
A business generating sales that are Zero Rated can still reclaim VAT on its costs.
A business that is generating "Exempt" sales is generally blocked from reclaiming VAT on its costs - but there is what HMRC refer to as "de minimus" levels under which VAT on costs CAN be reclaimed. VAT on costs can also be reclaimed on a "pro-rata" basis based on the split of sales between Standard/Zero Rate and Exempt.
So, if an entity has a combination of income which falls into "Standard Rate", "Zero Rate" and "Exempt", there can be some tricky rules that need to be applied to work out how much VAT it can reclaim on its costs. Specialist advice is always worth getting in this area.
Edited by Eric Mc on Tuesday 17th September 08:32
Eric Mc said:
No "obvious" about it. VAT has nothing to do with the nature of the business (limited company, charity, partnership, sole trader etc).
It's to do with
a) nature of turnover
b) whether the turnover exceeds the VAT registration threshold
If the turnover is of a VATable nature (including sales chargeable at Zero % VAT) the entity should register for VAT.
If the turnover is below the threshold, there is no need to register.
Do not confue "Exempt" with "Zero Rate". They are not the same.
A business generating sales that are Zero Rated can still reclaim VAT on its costs.
A business that is generating "Exempt" sales is generally blocked from reclaiming VAT on its costs - but there is what HMRC refer to as "de minimus" levels under which VAT on costs CAN be reclaimed. VAT on costs can also be reclaimed on a "pro-rata" basis based on the split of sales between Standard/Zero Rate and Exempt.
So, if an entity has a combination of income which falls into "Standard Rate", "Zero Rate" and "Exempt", there can be some tricky rules that need to be applied to work out how much VAT it can reclaim on its costs. Specialist advice is always worth getting in this area.
Thanks Eric, my ‘obvious’ comment was based on the fact that we’d have to be registered for VAT to reclaim, having owned and run a couple of businesses over the years I know the basics and was surprised that the club hasn’t been able to reclaim the VAT on leased equipment, it’s a tidy sum. I’ll get advice It's to do with
a) nature of turnover
b) whether the turnover exceeds the VAT registration threshold
If the turnover is of a VATable nature (including sales chargeable at Zero % VAT) the entity should register for VAT.
If the turnover is below the threshold, there is no need to register.
Do not confue "Exempt" with "Zero Rate". They are not the same.
A business generating sales that are Zero Rated can still reclaim VAT on its costs.
A business that is generating "Exempt" sales is generally blocked from reclaiming VAT on its costs - but there is what HMRC refer to as "de minimus" levels under which VAT on costs CAN be reclaimed. VAT on costs can also be reclaimed on a "pro-rata" basis based on the split of sales between Standard/Zero Rate and Exempt.
So, if an entity has a combination of income which falls into "Standard Rate", "Zero Rate" and "Exempt", there can be some tricky rules that need to be applied to work out how much VAT it can reclaim on its costs. Specialist advice is always worth getting in this area.
Edited by Eric Mc on Tuesday 17th September 08:32
Are you sure that the Club is a limited company? It's normal for sports clubs to avail themselves of significant benefits by registering as a Charity or a Community Amateur Sports Clubs and then separately operating any commercial ventures, such as catering, parties, alcohol sales etc through a Limited Company. The Limited Company profits then get donated to the Charity/CASC where they are then not taxed. Commercial non-sporting operations would generally preclude registration as a Charity or a CASC, so the separation in law is necessary to limit exposure to Corporation Tax.
That separation could mean the Club isn't registered for VAT, rather the Limited Company that the Club owns is, and that Partial Exemption issues don't arise. The consequence obviously is that the Club can't reclaim VAT on purchases of sporting equipment. If the Club isn't setup that way then there's a risk that Corporation Tax isn't being treated correctly.
That separation could mean the Club isn't registered for VAT, rather the Limited Company that the Club owns is, and that Partial Exemption issues don't arise. The consequence obviously is that the Club can't reclaim VAT on purchases of sporting equipment. If the Club isn't setup that way then there's a risk that Corporation Tax isn't being treated correctly.
paulrockliffe said:
Are you sure that the Club is a limited company? It's normal for sports clubs to avail themselves of significant benefits by registering as a Charity or a Community Amateur Sports Clubs and then separately operating any commercial ventures, such as catering, parties, alcohol sales etc through a Limited Company. The Limited Company profits then get donated to the Charity/CASC where they are then not taxed. Commercial non-sporting operations would generally preclude registration as a Charity or a CASC, so the separation in law is necessary to limit exposure to Corporation Tax.
That separation could mean the Club isn't registered for VAT, rather the Limited Company that the Club owns is, and that Partial Exemption issues don't arise. The consequence obviously is that the Club can't reclaim VAT on purchases of sporting equipment. If the Club isn't setup that way then there's a risk that Corporation Tax isn't being treated correctly.
It’s a not for profit limited company, apparently formed ten years or so ago, no idea why. That separation could mean the Club isn't registered for VAT, rather the Limited Company that the Club owns is, and that Partial Exemption issues don't arise. The consequence obviously is that the Club can't reclaim VAT on purchases of sporting equipment. If the Club isn't setup that way then there's a risk that Corporation Tax isn't being treated correctly.
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