C12 Value Added Tax (VAT)

Background

DFID is required to have a Value Added Tax (VAT) Liaison Officer (VLO) who is responsible for its VAT affairs. DFID's officer is situated in Financial Management Group (FMG). Any member of staff requiring advice on VAT should contact the VLO. Only the VLO may communicate with Her Majesty's Revenue & Customs (HMRC) about VAT matters.

Like all Government Departments, DFID is registered for VAT. DFID has two VAT registration numbers:

GD 888 8137 56 for use in dealings with UK suppliers and customers;
GB 888 8137 56 for use in dealings with suppliers and customers in other member states of the European Union (EU).

In most situations, VAT liability is determined by who is the immediate recipient of the supply, and never by who is the eventual recipient. Services supplied to DFID for the eventual benefit of one or more overseas aid recipients are services to DFID, not to an overseas recipient. In some cases where DFID is liable to pay VAT it can be reclaimed by the VLO from HMRC.

Services supplied to an overseas recipient will normally be outside the scope of VAT. Services supplied to DFID will attract VAT at the standard rate. Goods exported directly overseas by procurement agents should not attract VAT. Goods delivered to DFID in the UK, even if they are to be eventually exported will attract VAT at the standard rate unless they have been ordered by or for an overseas office that has Diplomatic status.

Compliance Tasks

1. DFID staff must never give VAT advice to a supplier. The supplier, not DFID, is responsible for determining the VAT liability. If a supplier asks for VAT advice, refer the supplier to their Local VAT Office.

Task assigned to: All Staff

2. All contracts for services must clearly state in Section 1 and in the terms of reference to whom the supplier is to supply the services e. g. to DFID, or to a named overseas recipient.

Task assigned to: All Staff

3. Staff must consult the VLO if VAT is charged when you think it should not be, or not charged when you think it should be.

Task assigned to: All Staff

4. Invoices on which VAT is charged must not be altered even if the supplier agrees that the invoice is incorrect or that VAT should not have been charged. Ask the supplier to reinvoice.

Task assigned to: All Staff

5. If an incorrect VAT charge is paid, it must be recovered from the supplier, not from HMRC.

Task assigned to: All Staff

6. If a supplier does not charge VAT but discovers later that he/she should have done, and issues an invoice for the tax, DFID should pay. If the VAT charge is in order check whether it is reclaimable.

Task assigned to: All Staff

Risks of non-compliance

• Loss of funds through paying VAT when it should not have been paid.
• Fines imposed on DFID by Customs and Excise because too much VAT reclaimed.