Be very careful when dealing with income that is described by any of the following headings; some of the terms are commonly interchanged and can mean different things to different people.
- Donations and Contributions
- Grants
- Recharges
- Re-imbursements
- Refunds (money received from suppliers)
- Bench Fees
In all cases it is essential to establish exactly who is doing what, to whom, where and why!
Donations and Contributions
When the University receives donations or contributions they are outside the scope of VAT as there is no supply. These types of income are where the contributor/donor gives the money for no return of goods or services from the University i.e. the donor receives no benefit.
It is important to establish that the donor or provider of the contribution receives nothing in return. Income is often described as a 'contribution' or 'donation' when in fact the provider receives a supply of services in return for their contribution. Examples of income sometimes incorrectly called contributions or donations are:
- Income received for use of the University's equipment
- Payment received for the use of our secretarial staff
- Money received towards the cost of a conference where the funder gets advertising in return
Describing income as a donation does not obviate the need to charge VAT if the substance and reality of the transaction is that money has been given in exchange for the receipt of a benefit.
It is acceptable for the donor to be recognised for their gift, e.g. a small plaque put on the wall, or a building named after them. However, if the donor's logo is on display, or other benefits are received, then the income is probably not a donation, rather sponsorship/advertising.
Please refer to Appendix C to help decide if money received is a true donation/contribution. If in doubt please contact the University VAT department.
Grants
When the University receives income from a sponsor for research the money should be allocated to a specific research grant and routed through the Research Operations Office. Income in relation to other types of grants may be paid direct into a departmental account.
If the income is not for the purposes of research the same principles will apply as for donations/contributions, and any benefits must be determined in order to work out the VAT rate to apply.
If the grant is a 'research grant' the VAT liability will be determined by the Research Operations Office and set up accordingly in the research grant module on the CUFS system. Invoices to request payment for research grants are dealt with directly by the Research Operations Office.
Further guidance is available in chapter 14 of the Financial Procedure Manual: Accounting for Donations & Grant Income.
Recharges
A recharge occurs when the initial supply of goods/services was between the supplier and the University. The University then recovers all or part of the costs from a third party. This recovery is a new supply by the University to the third party.
The key indicators that this is a recharge of goods or services are:
- The contract is between the supplier and the University (e.g. a purchase order, a formal contract - remember these may be verbal)
- Any dispute regarding the goods/services is between the University and the supplier or the University and the third party. The third party would not have any legal redress against the original supplier i.e. we took ownership of the goods.
- The supplier will have made any invoice out to the University rather than to the third party.
In these cases the source of funds will always be GAAA, an appropriate L transaction code should be used and the VAT liability of the supply to the third party will be determined by the nature of the onward supply. See sections Sales/Income in the UK and Sales to the Rest of the World for VAT rates on supplies.
Recharges to staff and students for their private use of University goods, facilities and services
Common examples of this are the use of the photocopier and private use of the telephone. On each occasion there is a supply of goods or services to the individual and the VAT will be dependent on what the supply is and who it is to. See Sales/Income in the UK for VAT rates on supplies.
Recharges to staff for private items purchased
Sometimes private purchases are made by staff through the University so they can benefit from the discounts that the University receives from the supplier, e.g. computers, office supplies. This is allowed but the full cost to the department (including an administrative charge to cover the processing costs) must be charged to the individual.
- If this occurs on a regular basis please contact the University Tax Team as it may be possible to reclaim VAT incurred on the original purchase.
- If you do not recharge at the full cost these will be classed as a taxable benefit and must be recorded on a P11D return at the end of the year.
If the University is invoiced for the goods then there are two supplies:
- the initial purchase by the University from the supplier, and
- he supply by the University to the staff member.
- Unless you have a specific trading account with a full VAT recovery on purchase costs, the value of the supply is the original cost of the item including VAT (gross cost) plus the administrative charge.
- If you have an appropriate trading account with a full VAT recovery on costs, then the value of the supply is calculated on the net cost of the item plus the administrative charge.
The full value of the income will be standard-rated unless the item can be specifically zero-rated as in the case of books. See Sales/Income in the UK for VAT rates on supplies.
Recharge of an employee's travel expenses to a third party
If this is part of an overall charge by the University to the third party for the services of an employee e.g. for a talk or lecture, the VAT rate is determined by the type of supply and who it is to. See Sales/Income in the UK for VAT rates on supplies.
If there is no fee paid other than the travel costs see Reimbursement of travel expenses by a third party - no fee for services for further guidance.
Re-imbursements
The University sometimes pays for supplies on behalf of other people where it is not contractually obliged to do so. However, the University will ask for these costs to be reimbursed by the third party.
These charges are 'Outside the Scope' for VAT purposes as there is no supply from the University; the contract is directly between the supplier and the recipient.
E.g. The University may pay for an employee's private use of a mini bar because it is included in a hotel's invoice along with legitimate business expenses e.g. the accommodation.
When paying the invoice the private costs should be entered using the tax code 'No UK VAT' and the account code should be:
- Source of funds: 0000 (the balance sheet) and
- Transaction code: UNAA (other debtors)
When the individual reimburses the University it should be for the exact amount of expenditure incurred by the University and offset against the same account code.
This should be entered using the tax code 'OS - Outside the Scope'.
Please note that reimbursements are not the same as private purchases because:
- The miscellaneous private expenses that the individual has purchased were not pre-booked/ordered by the University and there is no contract between the University and the supplier; and
- If an item is in dispute with the supplier it is up to the individual to resolve.
Reimbursement of travel expenses by a third party - no fee for services
Where the staff member has supplied, in the University's name, a third party with a service (e.g. lecture, talk, speech) free of charge, there is no supply between the University and the third party. However, the third party has reimbursed the travel costs so that the University is not 'out of pocket'. When recording the income on UFS it is 'outside the scope' of VAT and it should be coded to:
- Source of funds: EF** (general donations)
- Transaction code: LFAA (donations - miscellaneous
Refunds
Sometimes we will physically receive a cheque back from a supplier either as a result of a refund or a rebate/discount allowed and the following paragraphs explain what the correct VAT treatment should be.
The goods/services were defective/not received or there was an overcharge on the invoice
In these cases the money should be accompanied by a credit note that will be processed through the Accounts Payable module. The money received should be recorded in Accounts Receivable module against the same account codes as the credit note, i.e. the original expenditure code. This should be given the same VAT code as original invoice.
There was an overpayment
In this scenario we may not receive a credit note as it is probably a processing error on our part. In this case a debit note will be raised by the Accounts Payable team and processed through the Accounts Payable module. The money received should be recorded in the Accounts Receivable module against the same expenditure account codes as the debit note, using the same tax code as the original invoice.
They have given us a rebate/discount on our purchases
In this scenario the money is processed in the Accounts Receivable module only. This is coded to the same source of funds that is used for expenditure but it uses the transaction code LLAA (Discounts taken) or LLAC (Rebate on drugs purchases). The tax code 'O/S- Outside the Scope' should be used.
Bench Fees
An area that often causes confusion is bench fees. These are payments made to the University for use of the facilities which may include the use of consumables within a lab. If you are making a supply of consumables only this is a supply of goods which will be exempt if supplied to a student and standard rated if supplied to any other body.
Otherwise supplies of bench fees to individuals will be exempt if the individual is a student as a closely related supply of education or VATable at the standard rate if the individual is a visiting scholar, irrespective of where they 'belong'.
The decision as to whether a supply is closely related to the provision of education can be subject to interpretation and in cases of doubt you should seek advice from the University Tax team.
If the bench fee is charged to a business in the UK the charge will be taxable at the standard rate (SR20%). However, if the business is outside the UK, including other Universities, the charge will be zero-rated (use code EZS for the EC or RS for countries outside the EC).