VAT Exempt Question

CucaFace

I've recently set up a business involved in the education sector so its exempt from VAT on sales.

My question is on VAT I have to pay when I purchase goods or when I pay rent plus VAT.

Can I reclaim this VAT back from the Government or is this just a loss I have to take?

Any advice would be really appreciated.

smeharg

The ability to reclaim VAT on purchases is dependent on whether or not you charge VAT on your sales. If the goods/services you are supplying are exempt from VAT then you cannot reclaim VAT on purchases. The VAT just becomes an expense to the business.

What exactly does the business do?

srsly78

OP you need a VAT number to charge/claim vat. Go apply for one.

Alan Shore

srsly78 wrote: »

OP you need a VAT number to charge/claim vat. Go apply for one.

Are you serious if he is conducting an exempt activity then he can't get a VAT number, that's the point.

srsly78

And they will explain it to him when he tries.

There is a lot of confusion about zero-rated/exempt items. For example if I am exporting to a UK company I don't charge them vat right? So how come I have a vat number?

Alan Shore

CucaFace wrote: »

I've recently set up a business involved in the education sector so its exempt from VAT on sales.

The activity that you are conducting is exempt from VAT. Therefore you do not charge VAT on your sales and then you can't recover any VAT on your purchases.

As srsly78 says its not based on whether you charge VAT on your sales. A number of sectors education, medical, insurance, charities are exempt.

This is different to your sales being zero rated, in the case of zero rated intra community supplies or a vegetable wholesaler who do not charge VAT on sales but can recover VAT inputs.

As you are exempt No VAT can be recovered.

smeharg

Alan Shore wrote: »

...

As srsly78 says its not based on whether you charge VAT on your sales. A number of sectors education, medical, insurance, charities are exempt.
...

It is based on whether you charge VAT on sales. You can't register for VAT unless you are making taxable supplies. You can only reclaim VAT on purchases that have been used for the purposes of taxable supplies.

It is not the sector in which the business operates that determines whether or not VAT is charged it's the nature of the supply. For example, health care is exempt, yet expert witness services provided by a doctor are not; transport of passengers is exempt, yet the carriage/delivery of parcels in a taxi isn't; financial services are exempt yet a bank must charge VAT on finance leases.

Likewise, just because the OP operates in the education sector doesn't necessarily mean his sales are VAT exempt. This can only be determined on the precise nature of his activities which is why I asked the question.

CucaFace

Thanks for the replies.

Ok well Its a Language School.

I was pretty sure I couldn’t reclaim the VAT on purchases as I had asked this question to an accountant before, but yesterday another accountant I know told me different.

But I believe she was confused with the zero tax rate.

Alan Shore

smeharg wrote: »

It is not the sector in which the business operates that determines whether or not VAT is charged it's the nature of the supply. For example, health care is exempt, yet expert witness services provided by a doctor are not; transport of passengers is exempt, yet the carriage/delivery of parcels in a taxi isn't; financial services are exempt yet a bank must charge VAT on finance .

Indeed, services are classed into sectors but you are correct there are always exceptions.