THE COMPLEXITIES OF PARTIAL EXEMPTION
Member run sports clubs do not pay VAT on their key sources of revenue, so cannot recover full VAT on all of their expenditure, they only recover partial VAT. This requires a series of calculations to determine how much VAT can be reclaimed, with the rate varying every quarter and every year. At year-end, a further series of calculations are required to calculate an average percentage across the year, leading to an 'annual adjustment', which is then paid or claimed. The percentage resulting from the annual calculations is applied retrospectively to every partial exemption affected transaction to get a revised split of VAT between recoverable and non-recoverable. To make matters more complicated, only certain transactions are affected by partial exemption, others allow all the VAT to be reclaimed and others none of the VAT, dependant on another set of calculations, known as 'de minimis'. There are multiple variations to partial exemption, such as a fixed percentage, special VAT methods, annual accounting and group company VAT registration.
The “Irrecoverable VAT” Account - are your accounts accurate?
In partial exemption, part of the VAT is not recoverable so therefore becomes a cost to the club e.g. if you buy a tractor for £20,000 plus £4,000 VAT then approximately £2,800 of the VAT is not recoverable – so what happens to it? Many clubs will post this to a single “Irrecoverable VAT” account. This account will contain VAT from thousands of expenses from across the course, clubhouse and office, it becomes a giant sundries account. This means that your accounts don’t reflect the true cost of the expense and your P&L is inaccurate by several thousand pounds. It also makes it very difficult to budget and know precisely how much each department is spending, whilst explaining this account to the members and board can be challenging.
Croft Accounting is here to help
Croft Accounting software is the only system that automatically deals with every aspect of partial exemption VAT. The system is quick and efficient, processing the quarterly fluctuating percentage, the annual adjustment, claimable percentage and de-minimis calculations. No manual intervention is required to submit the VAT return, making Croft fully compliant with all the requirements of Making Tax Digital (MTD).
The system provides real time, accurate data of your next VAT payment/refund, as well as historic returns. Croft Accounting deals with all variations of partial exemption, split VAT and financial year-ends, group VAT registration, quarterly and annual accounting. Budgetary modelling tools take account of the irrecoverable VAT with tools to estimate your claimable percentage directly from your budget.
As the partial exemption VAT is being processed automatically, Croft removes the need for an irrecoverable VAT account, meaning your expense accounts reflect the true cost of items, your accounts and reporting are more accurate, clearer and easier to explain to members. You can also reduce accountancy fees, confident that your VAT is always accurate.