Issues for SU's - email from RSM

Temporary VAT cut on hospitality

The Chancellor recently announced that the Government will temporarily apply the reduced VAT rate (5%) to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafes and similar premises across the UK to support businesses in the hospitality sector.  The rate cut will apply from 15 July 2020 to 12 January 2021.

Administratively, such premises will be required to reprogramme their tills (or adjust proxy calculations etc) to deal with three different VAT rates: alcohol, crisps, confectionary and take away soft drinks at 20%, zero-rated cold takeaway food and 5% for everything else.

Catering concession

HMRC is currently challenging the application of the catering concession by Student Unions if they consider the establishment to be a pub or bar. 

HMRC are of the view that where a catering establishment is titled a “bar” or is considered to have the design features of a “Public House”, any supplies made by the Student Union to its students should be treated as taxable.

We can assist in providing you with an opinion as to whether your catering establishment is considered a “Public House” or “Bar” and provide recommendations to help mitigate the risk should HMRC challenge the position.  Many spaces can be ‘multi-purpose’ and the views of HMRC on this issue seem to be over simplified.

Grant income

We understand that many Student Unions have long-standing arrangements with the associated University where the Student Union receives a block grant.  There are also funding arrangements which sit outside of the block grant arrangement.

Over time, as the funding requirement has evolved so has the documentation.  Very often the agreements look more akin to a contract for services rather than a funding agreement and this has resulted in HMRC forming the view that the income is consideration for a supply to the University and subject to VAT at the standard rate.  It seems that a key point of HMRC’s argument is that the University is receiving a benefit in addition to the students.  HMRC have therefore been assessing for under declared output tax.

We would strongly recommend that should you have these types of arrangements in place, even if long established, the underlying agreements are reviewed to ensure that documentation accurately reflects the nature of the relationship between the parties.

Fundraising Exemption

Student Unions can apply the fundraising exemption to “eligible” fundraising events organised throughout the year (restricted to 15 events of the same kind at any one location during the financial year).

We are aware that HMRC are challenging the application of the fundraising exemption where events are of a semi-regular nature or continuous nature.  We can assist in reviewing the application of the fundraising exemption to determine whether the Student Union can demonstrate and evidence that the events held are clearly organised and promoted primarily to raise money for the benefit of the Student Union – and given the uncertainty in the area, we can seek a ruling from HMRC.

Many organisations have taken the decision to stop using the exemption.  We believe that this is unnecessary and inefficient, and we can support the re-introduction or robustness of applying the VAT exemption.

Clubs and societies

 Many Student Unions offer membership to a number of clubs and societies.  It is important to determine whether a club or society is part of the Student Union and as such its income and expenditure is to be reported via the Student Union.  We are aware that HMRC are currently challenging a number of Student Unions on this point.  

There are a number of factors that need to be considered when assessing the VAT status of clubs and societies, and we are aware that arrangements and relationships often evolve over time without regard to the possible VAT implications.

We strongly recommend that this area is considered in light of recent HMRC activity.