Value-added tax is a major issue for early years providers.
As you don’t charge it on the fees paid by the parents, you can’t reclaim it on the services and supplies you purchase.
Here are a few things to keep in mind when looking at the impact of VAT on your business:
VAT is not chargeable on water for non-industrial use, but beware: your water bill may include VAT. Your liability depends on your Standard Industrial Classification Code. If you haven’t supplied one, then the Water Authority may have used a default one or applied the code from the previous business. Contact them to check the SIC Code so as not to pay VAT.
VAT is usually charged at 20%; however, if your business meets the ‘De minimis’ requirements – i.e. if you use no more than 1000 kWh per month for electricity and/or less than 150 therms/4397 kWh per month for gas – you will be billed at 5% VAT on your gas and electricity bills. Check your bills carefully!
All businesses charging VAT must show their VAT number on their invoices. While it is unlikely that a business will charge VAT when it is not registered, there is a risk that this can happen. If you have any doubt, contact HMRC to confirm the details.
Beware when looking at catalogues, online portals and quotations from suppliers. In a B2B environment many will display the price net of VAT and only include VAT on the order form itself. Some smaller suppliers, particularly those with both commercial and retail customers, will quote the full price on their listing. So, when comparing prices, it is essential that you compare ‘like with like’. It is easy to be misled when one supplier is quoting the price net of VAT and the other is quoting the gross price including VAT.
The article “Getting to grips with VAT” was first published in Teach Nursery Magazine.