July 2021

VAT accounting for cathedrals and churches

The banding method for VAT apportionment

If registered for VAT as a church or cathedral consideration should be given to the approach on reclaiming VAT on expenditure (Input tax).

Of course, as we’re talking about HMRC and VAT, things are never straightforward and there are a number of different methods that can be adopted!

One of the methods, which isn’t compulsory, is the banding method and it is a feature introduced into Liberty Accounts software to make the process of recording VAT and submitting the VAT100 as simple as it is for a commercial organisation reporting VAT.

The banding method, also known as apportionment of tax by cathedrals and churches, has four bands. HMRC provides broad definitions of each to help everyone concerned to decide how to allocate the most suitable band of input tax recovery for the church or cathedral. These are:

  • Band A (90%) - to apply where there are significant entry charges to all main areas;
  • Band B (65%) - to apply where there is no entry charge but there are high numbers of visitors. Also there is significant taxable income such as from entry charges to other areas such as a crypt, museum or tower, or lettings for concerts;
  • Band C (45%) - to apply where there is no entry charge and insignificant taxable income from entry charges for other areas. But there are a reasonable number of visitors generating income from other sources, for example the book/souvenir shop;
  • Band D (25%) - to apply where there are no entry charges or only a few small charges, small numbers of visitors and little taxable income.

As an example of the calculation, if you were in band B, then rather than the standard 20% (or 5% on utilities) VAT it would be 65% of the 20% i.e. 13% (3.25% on utilities) VAT.

Liberty Accounts software has a configuration option which allows you to define the relevant band (if you have chosen to use this methodology). Data entry will then offer you the new VAT codes †20% and †5% to select as appropriate and the system will calculate the correct VAT. This means, if there are no further considerations to be made with regards to your VAT, that you can simply submit your VAT100 without the need to record any manual adjustments.

As mentioned at the start of the article, there are various methods that can be applied and you should consult with HMRC and your adviser as to the appropriate one for your church or cathedral.

If you are a church or cathedral that has adopted the banding method and looking for software that smartly handles the recording and reporting of your VAT then look no further. Register today for a free trial of Liberty Accounts software.

References:
HMRC - Input Tax 45700
ACAT Handbook

If you are not yet a user of Liberty Accounts Email us today or call on 0800 170 1150 to arrange a no obligation web presentation or simply try it out for yourself by registering for a FREE TRIAL.

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