Members associations often have many different income streams which lead them into complicated areas of VAT. Examples of such income can range from membership subscriptions, commissions arising from sales to members by third parties, sales of goods or services and the organising of events for members. Each of these income streams has VAT implications that need to be considered. This means that often relatively small organisations with little resources have to deal with complex areas of VAT. Here are a few examples the issues which may arise:
A subscription is normally subject to the standard-rate of VAT, because it is regarded as consideration for a package of benefits provided to the member. However, these benefits may be exempt from VAT, zero-rated, or it may be possible to persuade HMRC that the subscription is not a single supply but a mixed supply for a single consideration. This could mean that part of the subscription could be zero-rated or exempt. Even if it is ruled to be a single supply it still may be possible, where the Association is a ‘not for profit’ body’, to use a HMRC concession and agree a method which apportions the subscription between zero-rated and standard-rated elements. This will result in a reduction in the amount of VAT charged to members.
Associations often receive substantial commissions in respect of goods and services supplied to its members by third party providers. Commissions from companies in the finance and insurance sectors might be able to benefit from a VAT exemption. Whilst this is beneficial in that the income does not attract a liability to VAT, such commissions may result in a reduction in input tax recovery (see partial exemption below).
Associations are often involved in organising events for members. This can lead to complications in VAT accounting as the event may fall within the Tour Operators Margin Scheme.
Most associations produce a magazine for members. This is often included in the yearly subscription which usually leads to an apportionment of the subscription to reflect the value of the zero-rated magazine. However, with the increase in technology many associations are looking to supply their magazines electronically. This creates VAT problems as electronic magazines do not benefit from the zero-rating available to printed matter. Thus removing the zero-rate element of the subscription.
If the VAT on expenditure attributable to exempt income exceeds specified limits an association is described as ‘partially exempt’. This impacts on the recovery of VAT on certain costs and means the association must consider whether all VAT incurred can be recovered. CVC can assist in determining whether an input tax restriction is required and if necessary can help agree a ‘special method’ of recovery with HMRC to optimise the amount of VAT recoverable.
How we can help
We have in depth experience of helping Associations deal with some of the complex VAT accounting issues they face. It is important any subscription apportionment or partial exemption special method maximises input tax recovery but remains simple to operate. We have negotiated many favourable solutions with HMRC and put in place systems which are easy to operate yet produce good results.
For further advice or help, please get in touch.