Young Enterprise Value Added Tax (YE VAT)
It is important to understand the implications of YE VAT. It is one of the rules of Young Enterprise that YE VAT is calculated on all sales and purchases, except for prizes and YE registration fee, so that, like a real company, start-up company programme participants learn about VAT. The difference is that the net VAT is paid to Young Enterprise rather than to Her Majesty’s Revenue and Customs (HMRC). It should be noted that the rules of YE VAT differ from the VAT rules that apply to real companies who have to pay it to HMRC. On no account must any Young Enterprise company attempt to register with HMRC for VAT, nor show any VAT on invoices sent to customers.
VAT payments, plus YE registration fee and YE Corporation Tax serve two purposes: firstly to make the start-up company affairs as realistic as possible and secondly to provide some of the income Young Enterprise needs in order to provide current and future participants with this experience. In the unlikely event that the net YE VAT is a receivable, Young Enterprise will not make any refunds of YE VAT and, therefore, YE VAT receivable amount should be treated as a cost in the accounts of the company.
YE VAT is calculated on all sales (even though there are some exemptions in “real world” VAT), except for prizes won at trade fairs and competitions. Current VAT rate is 20% on net amount or 1/6thof the gross amount. So if the gross sales price per unit is (say) £18, the YE VAT is £3 and the net sales income is £15.
Similarly, YE VAT is calculated on all purchases (even though there are some exemptions in “real world” VAT), except for YE registration fee. The amount of VAT paid on some purchases may be shown on the invoice. If not, VAT should be calculated in the same way as for sales. So if the total purchase cost is (say) £12, YE VAT is £2 and the net purchase cost is £10.
In the above example, the net YE VAT payable is £1 (£3 minus £2), the sales amount is £15 and the purchase cost is £10, which means a profit before YE Corporation Tax of £5.
For more details on YE Tax, log in to your Young Enterprise account and see the Documents section: Company Information > Company Documents > Legal and Insurance responsibilities 2015/2016