A-Z of VAT terms, pitfalls and common mistakes

This list provides a brief explanation of some of the more common areas of confusion about VAT in the University.  For more guidance or advice on specific transactions you should contact the Tax section.

A B C D E F H I J L M N O P R S T V W Z

A

Academic conferences If you are organising an academic conference then it will be treated as an ‘educational event’ by HM Revenue and Customs. Read more about VAT for conferences or see conference fees if you want VAT advice on paying a conference fee.
Accommodation – UK The majority of accommodation providers in the UK will charge you VAT and issue a VAT invoice or VAT receipt. You should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

Some small hotels are not registered for VAT, in these circumstances you should process a purchase or expenses claim using Tax Code M0.
Accommodation – overseas Purchases or expenses claims for overseas accommodation, regardless of whether local VAT has been charged, should be processed using the gross amount and Tax Code XX.
Accommodation – for conference delegates Income received from charging for accommodation for conference delegates is exempt from VAT. You should process a cash receipt using Tax Code Z0.
Accommodation – for visitors Income received from charging for accommodation for visitors (not students or conference delegates) should charge VAT. You should process a cash receipt using Tax Code Z8.
Accommodation – for students Income received from charging for accommodation for students is exempt from VAT. You should process a cash receipt using Tax Code Z0.
Administration office costs See overhead costs.
Advertising – VAT relief See VAT relief.
Agency staff When the University buys-in temporary staff, via an employment agency:
  • VAT is due on the entire sum
  • You should process the purchase order using Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase)
Air travel See travel.

B

Books and leaflets Books and leaflets are zero-rated in the UK meaning that VAT is not charged.  This applies when they are bought by or sold by the University.

You should process a purchase or expenses claim for books and leaflets using the gross amount and Tax Code X0. The zero-rating can also apply to art and design work in connection with such documents BUT only where we are buying the actual printing services from the same supplier. You should process a Sales Order and Sales Invoice for books and leaflets using the Tax Code Z7.
Bus fares See travel.
Buying goods from outside the UK Detailed guidance, including the use of Tax Codes, is available for buying from outside the UK and VAT on imports.

C

Books and leaflets Books and leaflets are zero-rated in the UK meaning that VAT is not charged.  This applies when they are bought by or sold by the University.

You should process a purchase or expenses claim for books and leaflets using the gross amount and Tax Code X0. The zero-rating can also apply to art and design work in connection with such documents BUT only where we are buying the actual printing services from the same supplier. You should process a Sales Order and Sales Invoice for books and leaflets using the Tax Code Z7.
Car hire – UK Car hire is not classed as passenger transport and is subject to VAT and suppliers will issue a VAT invoice or VAT receipt. You should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
Car hire – overseas Purchases or expenses claims for overseas car hire, regardless of whether VAT has been charged, should be processed using the gross amount and Tax Code XX.
Car parking tickets Car parking charges incurred on-the-day or in advance are subject to VAT but many suppliers will not issue a VAT invoice or VAT receipt.
  • If you have a VAT invoice or VAT receipt for car parking charges you should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
If you don’t have a VAT invoice or VAT receipt for car parking charges then you should process purchases or expenses claims using Tax Code M0.
Catering See food.
Christmas parties events.
Concerts See events.
Conferences If you are organising an academic conference then it will be treated as an ‘educational event’ by HM Revenue and Customs. Read more about VAT for conferences or see conference fees below if you want VAT advice on paying a conference fee.
Conference fees – UK Conference fees paid to other UK universities and colleges will normally be exempt from VAT (you should process a purchase or expenses claim using the Tax Code M0).

Commercial companies (including subsidiaries of UK universities) which run conferences are required to charge VAT (you should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase)).
Conference fees – overseas Conference fees for non-UK conferences will always be outside the scope of VAT (you should process these purchases or expenses claims, regardless of whether VAT has been charged, using the gross amount and Tax Code XX).
Consultancy Detailed guidance, including the use of Tax Codes, is available on how to handle income ... from consultancy and get the VAT right and avoid the pitfalls … when raising sales invoices.
Contributions and payment in kind Where an external organisation provides something to the University (such as a piece of equipment) and this is ‘in return for’ services which the University will provide, it is likely that a tax issue will arise as VAT is due on a taxable supply, even where payment is not made in cash.

Please contact the Tax section for specific advice as soon as you become aware of such a transaction.
Corporate cards Detailed guidance, including the use of Tax Codes, is available for processing corporate card statements. You may also find specific guidance on the appropriate Tax Code for each type of purchase by browsing this A-Z list, or on VAT codes for expenditure or guidance on recoverable VAT.
Couriers – overseas Couriers transport goods both to and from the University outside the UK.

Imports: charges arise for goods coming to the University when they are imported from outside the European Union. Detailed guidance, including the use of Tax Codes, is available for importing goods.

Exports: when transporting goods away from the University you should process
purchases or expenses claims for:
  • exports to countries within the European Union using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
  • exports to countries outside the European Union using the gross amount and Tax Code M0).
Also see postage.
Couriers – UK The University uses couriers to transport goods to other companies within the UK.

Couriers transporting goods around the UK are required to charge VAT (you should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase)).

Also see postage.
Course materials sold to students See sale of goods and services to students.

D

Departmental office costs See overhead costs.
Deposits The University may be asked to pay a deposit, for instance when booking a hotel or conference. Deposits are generally non-VATable, meaning that you will not receive a VAT invoice or VAT receipt.

When an invoice is issued to pay a deposit there is an obligation upon the supplier, once payment has been made, to issue a proper tax invoice to the payer which shows the amount of VAT charged.

You should create a purchases order (from a requisition) for a deposit showing:
  • Tax Code M0
  • the value should be the full amount which will evenutally be payable to the supplier (not just the deposit amount)
  • add a Header Text note stating which Tax Code is applicable for the eventual purchase M2, M3 or M4 (depending on the recoverable VAT status of your purchase), or M1 if the purchase is for medical research or advertising
  • you should then goods receipt the purchase order to enable payment to be made to the supplier.

Once the VAT invoice is received by the Payments team then:

  • your purchase order will be updated to reflect the VAT invoice and net and gross amounts
  • the balancing payment will be made to the supplier
  • the VAT amount charged to the cost centre or project account will be automatically adjusted accordingly
If you are in any doubt about how to deal with deposits then contact the Tax section for advice.
Donations True donations are not subject to VAT as they are not ‘consideration for a supply’ and VAT is only ever charged on ‘supplies’ of goods or services.

However, to be a true donation, the money must be freely given with no expectation of anything being received by the giver in return for the payment; if the payer is to receive something in return for the payment that it is not a donation and may be VATable or not depending upon what the payer is to receive.

E

Expenses claims Detailed guidance, including the use of Tax Codes, is available for claiming personal expenses. You may also find specific guidance on the appropriate Tax Code for each type of purchase by browsing this A-Z list, or on VAT codes for expenditure or guidance on recoverable VAT.
European Union (EU) You can check if your supplier or customer is a member state of the European Union (EU).

You’ll need to know this when purchasing or selling goods and services from and to non-UK companies as it determines which Tax Code you need to use.
Events Events take many forms (academic workshops and meetings, staff social events, etc) and can be held on or off campus, leading to a variety of VAT scenarios.

When planning new events it is advised that you contact the Tax section for specific advice to ensure that any VAT is correctly budgeted and accounted for and that any potential VAT exemptions are claimed.

As a general rule events which involve the delivery of education (e.g. conferences, workshops, seminars and one-off lectures) do not require the University to account for VAT on any income. Any other events (e.g. concerts, trade fairs and exhibitions) require us to account for VAT on any ticket sales or other income we receive.

See here for specific advice on How to deal with your annual staff events (including Christmas parties).
Exemption from VAT See VAT exemption.
Exhibitions See events.

F

Faculty office costs See overhead costs.
Field trips See sale of goods and services to students.
Food and catering – non students The sale of cold takeaway food is zero-rated for VAT.
  • you should process a purchase or expenses claim for cold takeaway food using Tax Code M0.
However, the sale of ‘catering’, which includes both the food (hot or cold) and other services such as a place to eat it, is VATable.
  • you should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
  • you should process a Sales Order and Sales Invoice for ‘catering’ using Tax Code Z8.
Also see events.
Food and catering – students By concession from HMRC, the supply of catering by a University to students is exempt from VAT as being essential to their ability to study at the University. For this reason the University does not have to account for VAT on student catering but the exemption does not apply to sales to non-students.

See sale of goods and services to students and events.
Franking machines See postage.
Fully recoverable VAT Detailed guidance, including the use of Tax Codes, is available to explain the differences between recoverable, part- and non-recoverable VAT.

H

HMRC HM Revenue and Customs (HMRC). Government department responsible for collection of most taxes in the UK.
Hospitality VAT is NEVER reclaimable on hospitality and business entertaining, including food or accommodation, even if you have a VAT invoice or VAT receipt from a UK supplier.
  • If you have a VAT invoice or VAT receipt for hospitality costs then you should process purchases or expenses claims using the net amount and Tax Code M3.
  • If you don’t have a VAT invoice or VAT receipt for hospitality costs then you should process purchases or expenses claims using Tax Code M0.
  • If your hospitality costs are from an overseas supplier then you should process purchases or expenses claims using the gross amount and Tax Code XX.
More information about recoverable VAT is available in explaining the differences between recoverable, part- and non-recoverable VAT.
Hotel See accommodation.

I

Imports Detailed guidance, including the use of Tax Codes, is available for buying from outside the UK and VAT on imports.
Insurance Purchases of insurance are exempt from VAT under UK law.

If you are purchasing insurance through Risk 2 Value; the University’s insurance section within the finance department you should use Internal Trade (see guidance below).

If you are purchasing insurance alongside other goods directly from a supplier then you should process a purchase or expenses claim for these purchases using the gross amount and Tax Code M0.
Internal Trade Internal trade is the supply of goods or services provided by one University department to another.  VAT is never charged on internal trade.
  • use Tax Code XA for internal trade purchases
  • use Tax Code ZA for internal trade sales
You can also read more about Internal Trade at the University, including advice on when one department may need to pass on the VAT charged by an external supplier to another department.

J

Journal subscriptions – electronic Electronic or web-based journals are VATable in the UK.

If you are only purchasing, or claiming expenses, for a subscription to an electronic copy of a journal then you should process a purchase or expenses claim using the net amount and and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

Subscriptions often include both paper and electronic forms and, in such cases, HMRC expect VAT to be charged for on only part of the value of the subscription.

If your purchase includes both a paper copy of the journal AND access to the journal electronically then you should create a purchase order from a UK supplier using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

Although this will add VAT to the full value of the Purchase Order, when the invoice is processed, only the VAT actually charged on the invoice will be paid and the VAT amount charged to the cost centre or project account will be adjusted accordingly.

If you are purchasing a journal subscription from an overseas supplier, or submitting an expenses claim for an electronic and paper copy of a journal, then contact the Tax section for advice.
Journal subscriptions – paper Paper journals are zero-rated for VAT in the UK.

If you are only purchasing, or claiming expenses, for a subscription to a paper copy of a journal then you should process a purchase or expenses claim using Tax Code M0.

Subscriptions often include both paper and electronic forms and, in such cases, HMRC expect VAT to be charged for on only part of the value of the subscription.

If your purchase includes both a paper copy of the journal AND access to the journal electronically then you should create a purchase order from a UK supplier using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

Although this will add VAT to the full value of the Purchase Order, when the invoice is processed, only the VAT actually charged on the invoice will be paid and the VAT amount charged to the cost centre or project account will be adjusted accordingly.

If you are purchasing a journal subscription from an overseas supplier, or submitting an expenses claim for an electronic and paper copy of a journal, then contact the Tax section for advice.

L

Leaflets See books and leaflets.
Lectures See events.

M

Meals See food.
Medical research – VAT relief See VAT relief.
Mileage Expenses claims for mileage covered should be processed using the gross amount and Tax Code XX.

N

Non-recoverable VAT Detailed guidance, including the use of Tax Codes, is available to explain the differences between recoverable, part- and non-recoverable VAT.
Non-standard VAT rates In the UK we have three VAT rates, although sometimes it may appear that a supplier has charged a ‘non-standard’ rate of VAT.

In reality it is likely that either they have only applied VAT to some of the items you’ve purchased, or that they have agreed with HMRC that only part of their supply should be subject to VAT (this happens with membership subscriptions quite often).

If you are in any doubt about how to process a purchases or expenses claims for ‘non-standard VAT’ then contact the Tax section for advice.

O

Overhead costs Overhead costs such as the costs of professional service departments, department and faculty administrative offices and even staff development cost are all eligible for partial VAT recovery.

Purchases or expenses supported by a VAT invoice or VAT receipt (issued by the majority of UK suppliers) should be processed using the net amount and Tax Code M4.

P

Parking tickets See car parking tickets.
Partly recoverable VAT Detailed guidance, including the use of Tax Codes, is available to explain the differences between recoverable, part- and non-recoverable VAT.
Payments in kind See contributions and payments in kind.
Personal expenses Detailed guidance, including the use of Tax Codes, is available for claiming personal expenses. You may also find specific guidance on the appropriate Tax Code for each type of purchase by browsing this A-Z list, or on VAT codes for expenditure or guidance on recoverable VAT.
Plane fares See travel.
Postage Royal Mail postage is specifically exempt from VAT under UK law.

If you are purchasing Royal Mail postage (including the charges from Neopost for ‘topping up’ a franking machine), then you should process a purchase or expenses claim for these purchases using the gross amount and Tax Code M0.

Note:

The purchase or rental of a franking machine itself is NOT exempt from VAT. You should create a purchase order from a UK supplier using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

See also couriers.
Pro-forma invoice Pro-forma invoices are not VAT invoices and cannot be used to reclaim VAT (recoverable VAT).

When a pro-forma invoice is issued there is an obligation upon the supplier, once payment has been made, to issue a proper tax invoice to the payer which shows the amount of VAT charged.

You should create a purchases order (from a requisition) for pro-forma invoices showing:
  • use Tax Code M0
  • the value should be the full amount which will evenutally be payable to the supplier (not just the pro-forma amount)
  • add a Header Text note stating which Tax Code is applicable for the eventual purchase M2, M3 or M4 (depending on the recoverable VAT status of your purchase), or M1 if the purchase is for medical research or advertising
  • you should then goods receipt the purchase order to enable payment to be made to the supplier.
Once the VAT invoice is received by the Payments team then:
  • your purchase order will be updated to reflect the VAT invoice and net and gross amounts
  • the balancing payment will be made to the supplier
  • the VAT amount charged to the cost centre or project account will be automatically adjusted accordingly
If you are in any doubt about how to deal with pro-forma invoices then contact the Tax section for advice.
Professional services costs See overhead costs.
Publicly funded research Publicly funded research (PFR) is research undertaken by the University which is wholly-funded by grants provided by Research Councils, UK Government Departments and Local Authorities, overseas governments and the EU Commission, UK and overseas charities and the NHS (including primary care trusts and foundation trusts). Research which is funded by these bodies is PFR even where the funds are routed via a lead partner which is an industrial company; it is the ultimate origin of the funds which determines whether the research is PFR for VAT purposes.
Purchases from outside the UK Detailed guidance, including the use of Tax Codes, is available for buying from outside the UK and VAT on imports.

R

Reclaimable VAT Detailed guidance, including the use of Tax Codes, is available to explain the differences between recoverable, part- and non-recoverable VAT.
Recoverable VAT Detailed guidance, including the use of Tax Codes, is available to explain the differences between recoverable, part- and non-recoverable VAT.
Reduced rate of VAT See VAT rates.

S

Sale of goods and services to students Detailed guidance, including the use of Tax Codes, is available on how to handle income ... from students and get the VAT right and avoid the pitfalls … when raising sales invoices.
Sale of goods and services to customers – UK Detailed guidance, including the use of Tax Codes and Billing Materials, is availabe on get the VAT right and avoid the pitfalls … when raising sales invoices.
Sale of goods and services to customers – EU member states Where the University exports goods out of the UK, or provides services to non-UK customers, as part of a sale, we are not required to charge VAT to the customer subject to certain conditions.

If the customer is in another European Union (EU) member state then you must obtain their VAT registration number before you raise a Sales Order.

You should process your Sales Order and Sales Invoice using the appropriate material. VAT will not be charged on exports of goods or the following services:
  • research services
  • staff secondments by the University to third parties
  • consultancy supplied by the University
  • electronic services supplied by the University (eg e-journals)
  • granting of any right or license by the University (eg Intellectual Property (IP) licensing)
Note:
  1. The customer MUST receive a copy of a University of Sheffield Sales Invoice.
  2. If you are exporting goods then you must retain the proof of shipment within your department.
If you are in any doubt about how to process a Sales Order and a Sales Invoice to overseas customers then contact the Tax section for advice or read more about get the VAT right and avoid the pitfalls … when raising sales invoices.
Sale of goods and services to customers – non-EU member states Where the University exports goods out of the UK, or provides services to non-UK customers, as part of a sale, we are not required to charge VAT to the customer subject to certain conditions.

If the customer is in NOT another European Union (EU) member state then the sale of goods which are being exported from the UK and the following services are not subject to VAT:
  • research services
  • staff secondments by the University to third parties
  • consultancy supplied by the University
  • electronic services supplied by the University (eg e-journals)
  • granting of any right or license by the University (eg Intellectual Property (IP) licensing)
Note:
  1. The customer MUST receive a copy of a University of Sheffield Sales Invoice.
  2. If you are exporting goods then you must retain the proof of shipment within your department. If you are in any doubt about how to process a Sales Order and a Sales Invoice to overseas customers then contact the Tax section for advice or read more about get the VAT right and avoid the pitfalls … when raising sales invoices.
Services rendered Detailed guidance, including the use of Tax Codes, is available on how to handle income ... from services rendered and get the VAT right and avoid the pitfalls … when raising sales invoices.
Staff development costs See overhead costs.
Standard rate of VAT See VAT rates.

T

Taxi fares See guidance on travel (below).
Temporary staff See agency staff.
Tram fares See guidance on travel (below).
Train fares See guidance on travel (below).
Training courses – overseas Purchases or expenses claims for training courses provided by any overseas organisation (University or commercial), regardless of whether VAT has been charged, should be processed using the gross amount and Tax Code XX.
Training courses – UK Education and training is exempt from VAT when provided by a UK university, college, school or other public body. You should process a purchase or expenses claim for these purchases using Tax Code M0.

Education and training provided by a commercial organisation in the UK is subject to VAT and suppliers will issue a VAT invoice or VAT receipt. You should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
Travel – overseas Purchases or expenses claims for overseas travel (including car hire and taxi fares), regardless of whether VAT has been charged, should be processed using the gross amount and Tax Code XX.
Travel – UK Passenger transport is zero-rated in the UK meaning that VAT is not charged on tickets for air, rail, bus and tram travel (you should process purchases or expenses claims using the gross amount and Tax Code M0).

Car hire and taxi hire are not classed as passenger transport and are subject to VAT and suppliers will issue a VAT invoice or VAT receipt. You should process a purchase order or expenses claims using the net amount and Tax Code M2, M3 or M4 providing you have a valid VAT receipt (depending on the recoverable VAT status of your purchase).

Some small taxi firms are not registered for VAT, in these circumstances you should process a purchase order or expenses claim using Tax Code M0.

Also see car parking tickets.

V

VAT exemption Some types of supply are exempt from VAT under UK law. These include insurance, most financial services, education and training provided by schools, colleges and universities, postage provided by the Royal Mail and most healthcare services.

For the majority of these types of purchase you should process a purchase or expenses claim for these purchases using the gross amount and Tax Code M0. If you are purchasing insurance then please read the specific guidance notes relating to insurance in the University.

VAT exempt purchases are not quite the same as purchases which are zero-rated, although the same Tax Code is used for all of these circumstances.

The University can claim VAT relief (ie VAT is not charged by the supplier) on certain goods and services used in medical research and on purchases of advertising. Further guidance, templates for claim certificates and use of Tax Codes is available for VAT relief for medical research or VAT relief for advertising.
VAT invoice or receipt The invoice or receipt for your costs is a VAT invoice or VAT receipt if it has ALL of this information on it:
  • supplier's name
  • supplier's address
  • supplier's VAT registration number
  • the amount of VAT charged on your purchase
A credit card receipt is NOT a VAT receipt.
VAT rates The UK VAT rates for purchases from UK suppliers are.

Zero-rated: a small number of items are specifically listed in UK VAT law as being ‘zero-rated’. VAT is not charged on these goods and services . Examples of zero-rated purchases include: In the VAT world, ‘zero-rated’ means something different to ‘VAT exempt’, but from a purchasing point of view they amount to the same, VAT is not charged in either case. You should process a purchase or expenses claim for these purchases using the gross amount and Tax Code M0. Purchases or expenses claims for medical research should be processed using the gross amount and Tax Code M1.

Reduced rate: certain supplies are subject to VAT at a reduced rate of 5%. These limited supplies include ‘domestic’ fuel and power, such as electrcity provided to accommodation blocks and similar buildings.

The majority of these purchases are undertaken by the Department of Estates on behalf of the University. If you are required to process a purchase or expenses claim for these purchases then use the net amount and Tax Code M6, M7 or M8 (depending on the recoverable VAT status of your purchase).

Standard rate: if your purchase is not covered by zero-rated VAT or reduced rated VAT rules then it will be subject to standard rate VAT at 17.5%.

You should process purchases or expenses claims using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).
VAT relief The University can claim VAT relief (ie VAT is not charged by the supplier) on certain goods and services used in medical research and on purchases of advertising. Further guidance, templates for claim certificates and use of Tax Codes is available for VAT relief for medical research or VAT relief for advertising.

W

Water For example: water coolers. Purchases of bottled drinking water from external suppliers are always VATable. We cannot claim VAT relief for those departments engaged in medical research on this type of purchase. You should process purchases using the net amount and Tax Code M2, M3 or M4 (depending on the recoverable VAT status of your purchase).

Exception: bottled water provided by Accommodation and Campus Services is covered by Internal Trade within the University. You should process Internal Trade purchases using Tax Code XA.

Z

Zero-rated VAT See VAT rates.
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Need help or more information?

Who to contact
If you need advice or guidance on VAT then contact the Tax section.