VAT is currently charged at 20% by the UK government – any tax charged on societies goes to the government, not to us! You pay VAT all the time without noticing; almost everything you buy will have VAT built into the price. There are some exceptions to this, if certain criteria are met.
The Guild is VAT registered, meaning VAT is paid on income, but not on expenditure, if a VAT invoice or receipt is provided. As your society is part of the Guild financially, this applies to you too. What this means for your society, is that you will be taxed at 20% on all society income,not just profit. However, if you provide us with a VAT invoice for society expenditure, we can reclaim the VAT that has been paid.
If you'd like more information about VAT invoices, you can see the government information page here.
Any income you receive is called your ‘Gross Income’, this amount is inclusive of VAT. To calculate the amount of VAT in this income you need to consider the following:
The gross income is 120% of the amount you will receive
The net income is 100% of the amount you will receive
The amount of VAT is 1/6 of the gross income
To calculate the amount of VAT from your gross income:
Divide the gross income by 6
To calculate the net income from the gross income:
Divide the gross income by 1.2
To calculate the gross income from the net income:
Multiply the net income by 1.2
Your membership is on sale for £12 and you sell 30 memberships – how much money will appear in your society account?
- Number of memberships multiplied by the membership price: £12 x 30 = £360
This is the gross income.
- VAT is charged at 20% on gross income, so to get your net income: £360 / 1.2 = £300
So, your society will receive £300 in membership
Your society wants to sell stash to members and are quoted a net price of £8 per item. How much should you sell your stash for to cover your costs and break even?
The net price is £8, this is exclusive of VAT. You will be charged 20% VAT on the income you receive when selling these items, so you need to factor this into the price you sell the items for
- To calculate the gross income from the net: £8 x 1.2 = £9.60
So, you will need to sell your stash for £9.60 per item, to break even.
What is a VAT Exemption?
A VAT exemption is when something is not subject to VAT. There are four main VAT exemptions which you need to be aware of: Cake, Donations, Educational and TOMS.
Any income from cake sales is exempt from VAT due to cake being classed as an essential food item in the Second World War. If you are selling any items other than cake, these will be subject to VAT so it's important to keep record of what you’ve taken income for.
Any money given as ‘something for nothing’ is exempt from VAT. This means that the person making the donation receives nothing in return for their money – be that publicity, products or entry to an event or venue.
It’s important to be careful when claiming this exemption…
Fixed ticket prices are not exempt, even if it is for an event for charity. This is because the person giving the money has received something (in this case, entry to an event) in return for their money
If entry to your event is subject to a ‘suggested donation’, then proceeds are VAT exempt, as the attendees do not have to give you money to enter.
In this circumstance you must provide us with proof of suggested donations, including advertising and collecting donations in a sealed charity bucket.
Be careful when using crowdfunding websites. If you give people something, however small, in return for a certain amount of money, then their money is not, legally speaking, a donation, and you will be taxed on it. However, if no rewards are offered/taken, this money is VAT exempt.
For more information on donations and fundraising for charity please see here.
All income and/or expenditure relating to an educational event are VAT exempt. Educational events are when you are teaching someone something new or a new skill, if you are unsure whether your event falls under educational then don’t hesitate to contact the Activities Team to check! Remember that you will need to complete a TOMS/Educational budget, to submit your income and expenditure as educational.
For example: Rehearsals are not exempt, as you are practicing something, not learning something new. A class, where you are teaching a new topic is exempt, as it falls within the definition above.
Please note that any profit made on educational events, must be spent on future educational events and cannot be used for alternative activities.
TOMS stands for Tour Operators’ Margin Scheme, and is essentially when your society organises a trip and puts together a package of at least one of the following:
Please note that this does not include accommodation and transport organised through a travel agent, or transport purchased individually for each person.
Any money received as part of a TOMS event is VAT exempt, you will only pay VAT on any profit you make (I.e. when your income is more than your expenditure). You will need to complete a TOMS/Educational budget for this type of event, before you can submit expenditure and income under TOMS.
Your society is organising a trip to Spain. Flights cost £100 per person, and accommodation costs £120 per person, bringing the total cost to £220 per person.
You decide to sell tickets at £250 per person, resulting in a £30 profit per person
You manage to sell 30 tickets giving you a total income of £7500
Calculating the total profit from the event - 30 x £30 = £900
As this £900 is profit it will be subject to VAT, therefore the final profit will be £750.