Just be grateful I dont take it all

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Just be grateful I dont take it all

• SCONUL Autumn Conference 2004
• Pat Noon

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The legal basis 1

• Universities are exempt for VAT purposes
• Cant reclaim VAT on supply of education
• Normally constructing and running libraries is
  just one of the overheads to supplying education
• But

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The legal basis 2

• Supplying library services independent of
  education supply can be taxable
• Therefore input VAT can be recovered
• Books and periodicals are zero rated for VAT
• This makes levels of recoverable VAT very
  attractive in some circumstances

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Reasons for setting up a scheme

• To reclaim the VAT on the build cost of buildings
  or extensions
• To hedge against VAT on books and periodicals
• To reclaim VAT on future recurrent and capital
  spend

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Is it worth it?

• 3.1m cash in the bank
• 4.9m savings in irrecoverable VAT over 10 years
• 0.5m IE account benefit

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The process 1

• Decide if it is worth it
• Appoint tax advisers
• Develop options for a scheme
• Choose a scheme
• Do the financial models
• Agree an irrecoverable VAT model
• Take legal advice

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The process 2

• Set up a company
• Draw up all the company documents
• Finance the company
• Get agreement from Customs
• Agree prepayments if required.
• Adapt Library budget processes
• then run the company for 10 years

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A cast of thousands

• You
• .and any of your senior colleagues who
  understand
• Your budget manager
• The Director of Finance
• The Deputy Director of Finance
• Your Finance liaison accountant
• The person in Finance who understands VAT
• The University Secretary/ legal expert
• The University legal advisers
• The Director of Estates

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.and thousands

• A tax consultant
• Another tax consultant when the first goes on
  maternity leave
• The first one back again when the second one
  leaves
• Their accountant who understands VAT
• A Barrister
• A Valuer
• Customs and Excise

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Options for a VAT Scheme

• Keep everything within the university
• Use the universitys enterprise subsidiary
• Create a separate tax vehicle
• A subsidiary company
• A charitable trust/company
• Make sure you pick the right one

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A separate company

• In order to convince Customs
• You will need counsel opinion
• It has to last 10 years
• It has to make a profit.. but not too much
• It has to operate at arms length from the
  university

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Making the company work

• It will need some money from somewhere
• and a library to run
• and some staff
• and services
• and a Board Of Directors
• and Instrument and Articles
• and Board Meetings

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Populating the company

• Cash loans from the University
• Staff leased from the University
• A Library - bought from the university
• Equipment, furniture and fittings -depreciated
  cost
• Books periodicals car boot value
• Services bought in from the university

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Lease
Land
Contractor
Finding the cash No 1 Building the Library
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Finding the cash No 2 Keeping the company going
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But its never that simple

• Limited v Charitable company
• TLSU
• Two sets of accounts
• Three sets of budget monitoring
• Invoices within the same building
• Two Business Plans
• Two Annual Reports
• Fluent in Finance?
• Prepayments

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• This is an anti avoidance provision aimed at
  preventing the use of VAT groups for VAT
  avoidance purposes. it gives Customs powers to
  direct that the companies concerned to be treated
  as if they were in a VAT group (thereby ignoring
  supplies between them) or conversely direct that
  a VAT group which is already in place is not
  effective for particular transactions (creating a
  VAT charge where none would otherwise arise)

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Prepayment

• A form of gambling hedging
• Potential benefits if VAT scope changes
• Liabilities known for a fixed term
• May impose limits on freedom of the company and
  therefore the Library
• Managing Income
• Restricting budget revisions up and down

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VAT Models

• Direct costs
• 15
• Floor space
• Lowest figure (7) but Customs unlikely to accept
• All the PC space will count as standard rated
• Staff time allocation
• Close to direct cost but lower (13)

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Staff time issues

• Restrictions on activities
• CSV
• Careers
• Convincing Customs
• The diary exercise
• What is standard rated, what is zero rated

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Through the looking glass

• A PC isnt a book but it can count as zero rated
  if
• You are using the library catalogue to find a
  book
• You are using it to write a guide to finding
  books or periodicals
• But not if you are writing a guide to e-resources
• But if you are explaining about a database where
  the outcome is a book that could be zero rated!
• And then there is Customs and Excise

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Customs and Excise

• Excise A hateful tax Dr Johnson
• The Chancellor is more or less a taxing
  machine.He is entrusted with a certain amount of
  misery which it is his duty to distribute as
  fairly as he can Viscount Lowe

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Talking to the tax man about poetry
The University

• Customs and Excise

• For strategic reasons we want to set up a Library
  subsidiary company

You mean youve got an idea for a tax scam
For operational reasons part of the Library will
remain outside the company
That definitely sounds like a scam

• We want to prepay the service charge for five
  years

I knew it was a scam!
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Battles with the tax man

• We are trying to maximise scarce resources
• These resources are being used to improve
  directly support for students
• They are not going into the shareholders back
  pocket
• Why dont you chase the real villains?

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Is it really worth it?

• Doesnt necessary bring additional funds by
  itself
• But more money for the university is good for all
  of us
• Provides kudos for saving lots of money
• which can have other indirect benefits
• Budget cuts
• Preserving some build costs

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• Its as true as taxes isand theres nothing
  truer than them Barkis
• But in this world nothing can be said to be
  certain except death and taxes - Franklin
• You know the taxman is going to shaft you, you
  just dont know how -I said that

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Accountants are taking over the world
They will replace her with Cruella Da Ville
3m tax savings secured
dont let them
Make sure your VAT model is robust
Never trust a smiling Tax Officer
Get the right Company structure
Dont lose your tax consultant
Let the accountants do what they are good at
Learn to tell the future
whatever that is
Make sure it is worth it?
Do engage VAT consultants
Stick to being the Librarian
Lets set up a VAT scheme
Winning the VAT Game
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Talking to the tax man about poetry

• Customs and Excise
• You mean youve got an idea for a tax scam
• That definitely sounds like a scam
• I knew it was a scam!

• The University
• For strategic reasons we want to set up a Library
  subsidiary company
• For operational reasons part of the Library will
  remain outside the company
• We want to prepay the service charge for five
  years