Most UK businesses have to charge Output VAT (Tax) on all their sales (called supplies), but can usually recover Input VAT (Tax) on their purchases and payments, and then pay (or receive) the difference to HM Revenue and Customs (HMRC). In most cases it is a neutral tax until it hits the final consumer or a business that cannot recover input tax.
As most of the University’s supplies are connected with education, which is exempt from VAT, we are unable to recover most of our input tax incurred on making those supplies and it becomes part of the cost of the purchase.
Therefore, all costing should take into account this irrecoverable input tax. Remember that most of our suppliers will be quoting us net of any input tax as they will assume that we can recover it.
The University is allowed to recover DIRECTLY ATTRIBUTABLE input tax on most purchases connected with the making of Vatable (Taxable) supplies, and this is often called “tunnelling”.
In order to account for the correct amount of VAT on its VAT Returns, and to collate all the statistical and turnover information for its other various VAT Returns, the University has to use a number of VAT or Tax codes on all the coding slips. It is vital to use the correct code in order to prevent mistakes, thus incurring penalties from HMRC.
Tax codes connected with sales, income and output tax begin with an S.
Tax codes connected with purchases, payments and input tax begin with a P.
More specific advice on most areas of VAT affecting the University can be found in the navigation at the left of this page.
Help can also be obtained from the VAT Section of the Finance Office, telephone: 46076, email: firstname.lastname@example.org.