Vat On Crematorium Fees?

[DHM]

A question for anyone with experience/expertise in this area:

 

For the last few months I have been playing at the local crem. Fees for each service are paid on the day (cash or cheque) by the undertaker. Obviously I have been keeping careful accounts of these for my tax returns.

 

The question has now arisen as to whether, because I am VAT-registered as a sole trader in connection with other business activities, I should charge VAT to the undertakers. My accountant wasn't sure, but thought I should. A phone call to HMRC produced the answer that I definitely MUST, because as a sole trader I must charge VAT on everything I do in a self-employed capacity - and not only that, but I must somehow claim back all the VAT I should have charged, and didn't (since the question has only just arisen) since last July. So I guess I am not going to be very popular!

 

I can see problems arising because no VAT is payable on funerals, and therefore many FDs are not VAT-registered. Can anybody see a legal way round this?

 

Thanks in advance for any useful advice.

 

Douglas.

[Pierre Lauwers]

"I must somehow claim back all the VAT I should have charged.... since last July. So I guess I am not going to be very popular!"

(Quote)

 

The customers we deal with aren't the kind to come back with protestations...

This said, on the other hand, I wonder how one could ask them for money afterwards.

 

Pierre

[DHM]

This said, on the other hand, I wonder how one could ask them for money afterwards.

 

Pierre

That, according to the VATman, is my problem, not his (they're so sympathetic, these tax-collectors!).

[pcnd5584]

Obviously I have no wish to pry into your finances (and I have no idea what other work you do), but are you sure that you need to be VAT-registered? As of last year, to the best of my knowledge, the earnings threshold at which one needed to register stood at £64,000.

 

If you happen to run a company, clearly this is probably the case; however, I was working on the assumption that, in this instance, a company director would neither wish nor have the time available to play an electronic organ in a crematorium.

[DHM]

Obviously I have no wish to pry into your finances (and I have no idea what other work you do), but are you sure that you need to be VAT-registered? As of last year, to the best of my knowledge, the earnings threshold at which one needed to register stood at £64,000.

 

If you happen to run a company, clearly this is probably the case; however, I was working on the assumption that, in this instance, a company director would neither wish nor have the time available to play an electronic organ in a crematorium.

 

I have never had to register my "sideline" business (as it is under the threshold), but did so voluntarily 20+ years ago; so far that has always worked to my advantage. Since being made redundant from my part-time teaching job 18 months ago, I have more time on my hands, and the crematorium fees are very useful. To have to de-register now would probably not be financially advantageous.

[headcase]

...no VAT is payable on funerals, and therefore many FDs are not VAT-registered.

 

I'd be surprised if F.D's earned less than £64k a year !!

 

If YOU are VAT registered, YOU are obliged to charge VAT on YOUR invoices.

 

The funeral directors must pay the full amount, irrespective of whether THEY are VAT registered or not, just as we all pay VAT on fuel, even though most of us, as individuals, are not VAT registered.

 

H

[David Coram]

I can only state my experience from the glazing industry.

 

As a VAT registered glazing contractor, I had to charge VAT on all sales invoices.

 

Where work was being carried out on 'new build' properties - zero rated for VAT - my invoices to the main contractor were zero rated. My services were an essential component of that zero-rated project, rather than a general supply one such as diesel or jars of coffee or boxes of screws.

 

As funerals are non-VATable, I would presume you could effectively argue the same thing.

 

PS: DHM, are you getting my e-mails?

[DHM]

I can only state my experience from the glazing industry.

 

As a VAT registered glazing contractor, I had to charge VAT on all sales invoices.

 

Where work was being carried out on 'new build' properties - zero rated for VAT - my invoices to the main contractor were zero rated. My services were an essential component of that zero-rated project, rather than a general supply one such as diesel or jars of coffee or boxes of screws.

 

As funerals are non-VATable, I would presume you could effectively argue the same thing.

Tried that - went back to HMRC, having read a detailed VAT notice about what was and was not exempt, and asked for clarification of yesterday's advice. The answer was still the same. The FD doesn't charge VAT to the customer, but the gravedigger, coffin-maker, organist, etc would (if VAT-registered) have to charge VAT to the FD.

 

Thanks to you and everyone else for your helpful suggestions.

 

PS: DHM, are you getting my e-mails?

Yes, thanks, David. Could you please give me a name for the DoM whose e-mail address you gave me?

[David Coram]

Tried that - went back to HMRC, having read a detailed VAT notice about what was and was not exempt, and asked for clarification of yesterday's advice. The answer was still the same. The FD doesn't charge VAT to the customer, but the gravedigger, coffin-maker, organist, etc would (if VAT-registered) have to charge VAT to the FD.

 

Thanks to you and everyone else for your helpful suggestions.

Yes, thanks, David. Could you please give me a name for the DoM whose e-mail address you gave me?

 

I should have another pop. I would say that the coffin was a product, the grave-digger was a 'general service' of the fuel/supplies variety, but your service - the music - is an essential component of the funeral without which it would not be complete.

 

Name of DOM - sorry, very poor line and didn't catch it...!

[Vox Humana]

I think I am right in saying that, in general, if you are registered for VAT you do have to charge it. The only exception is products/services that are exempt from VAT. Exempt products/services are not the same as those that are zero-rated, on which you do have to charge VAT - at 0%! But this is just what I have picked up en passant - I'm no expert.

[Guest Barry Williams]

If you are, say, a plumber and therefore charge VAT on your plumbing activity, you are also obliged to charge VAT when you earn fees by playing the organ. This is because the person is registered for VAT rather than the business.

 

Funerals are exempt from VAT.

 

The only way around the law is to register a different legal person, such as a limited company. However, this will fall foul of specific legisltation that enables HMRC, quite properly, to amalgalmate businesses for VAT purposes when the arrangment is clearly set up for tax avoidance/evasion.

 

Alternatively, you could be PAYE at the Crematorium, which takes the VAT issue right out of consideration.

 

Barry Williams

[CT_Worcester]

If you are, say, a plumber and therefore charge VAT on your plumbing activity, you are also obliged to charge VAT when you earn fees by playing the organ. This is because the person is registered for VAT rather than the business.

 

Funerals are exempt from VAT.

 

The only way around the law is to register a different legal person, such as a limited company. However, this will fall foul of specific legisltation that enables HMRC, quite properly, to amalgalmate businesses for VAT purposes when the arrangment is clearly set up for tax avoidance/evasion.

 

Alternatively, you could be PAYE at the Crematorium, which takes the VAT issue right out of consideration.

 

Barry Williams

 

Barry is right. At the FD level, no VAT charged, but the FD suffers VAT on his cost inputs. FD's typically recover 15% or so of their input VAT overall, as some supplies they make are taxable, eg flowers etc. I've checked the Exempt Schedule, and the VAT exemption for Burials and Cremations is very restrictive - it only covers disposal of the remains of the dead / making arrangements for...

 

I'm glad to see DHM is being careful to declare his crem fees. HMRC had a purge on these a few years ago and it was found that a lot of doctors had missed crem fees off their tax returns.

 

Has DHM thought of going for a Flat Rate Scheme - reduces effective rate of VAT that has to be paid?

[DHM]

Alternatively, you could be PAYE at the Crematorium, which takes the VAT issue right out of consideration.

Barry Williams

Nice idea, but they wouldn't hear of it - it would mean changing the way they do things!

They're already far too stressed to consider anything useful like that.

And my other colleagues on the rota might not want to go down that route just to make my life easier.

 

I'm glad to see DHM is being careful to declare his crem fees. HMRC had a purge on these a few years ago and it was found that a lot of doctors had missed crem fees off their tax returns.

It's a significant part of my income now, so it would be mad not to.

 

Has DHM thought of going for a Flat Rate Scheme - reduces effective rate of VAT that has to be paid?

Yes, but since the VATman owes me money in most quarters, that's not an option.

Thanks for the suggestion anyway.

[Guest Barry Williams]

"Nice idea, but they wouldn't hear of it - it would mean changing the way they do things!

They're already far too stressed to consider anything useful like that.

And my other colleagues on the rota might not want to go down that route just to make my life easier."

 

Please forgive me if this sounds a little harsh, but the issue of whether PAYE should be operated is not a matter of choice. (A number of churches think it is, stating in job descriptions that their organist 'will be self-employed'.) PAYE arises when there is employment and its operation is a matter of law.

 

Barry Williams

[DHM]

Please forgive me if this sounds a little harsh, but the issue of whether PAYE should be operated is not a matter of choice. (A number of churches think it is, stating in job descriptions that their organist 'will be self-employed'.) PAYE arises when there is employment and its operation is a matter of law.

 

Barry Williams

That then raises the question: if we are employed, then by whom?

We are paid for each service by the FD on the day. Our only dealings with the crem office are to call them 24 hours ahead to discover what services we are required for and what we are to play.

[Guest Barry Williams]

Usually the Crematorium engages and pays the organist. It would all depend on the precise terms of your engagement. Payment by someone other than your employer does not prevent the contract being one of employment.

 

As you might gather, this is a complex area with much case law that does not always clarify the issue.

 

In all cases, HMRC will give a ruling if asked to do so. Alternatively you could use the Employment Status Indicator which is available on the HMRC Website.

 

Barry Williams

[DHM]

Thanks again, Barry.

 

Usually the Crematorium engages and pays the organist. It would all depend on the precise terms of your engagement. Payment by someone other than your employer does not prevent the contract being one of employment.

There is no contract, so no terms of engagement. I was simply invited (by one of the other organists) to join the rota.

 

In all cases, HMRC will give a ruling if asked to do so.

They have done so (twice - I called again for further clarification).

 

Alternatively you could use the Employment Status Indicator which is available on the HMRC Website.

Tried that - it kept referring to a contract (which I don't have).

[davidh]

Thanks again, Barry.

There is no contract, so no terms of engagement. I was simply invited (by one of the other organists) to join the rota.

They have done so (twice - I called again for further clarification).

Tried that - it kept referring to a contract (which I don't have).

You were invited to join the rota and the FD asked you to play on the understanding that you would be paid for it, so you have a verbal contract which is just as binding as a written one, although it is much harder to establish exactly what the terms are, and a court would judge on what is usual and customary in such cases. What you do not have is a written contract.

[Guest Barry Williams]

You were invited to join the rota and the FD asked you to play on the understanding that you would be paid for it, so you have a verbal contract which is just as binding as a written one, although it is much harder to establish exactly what the terms are, and a court would judge on what is usual and customary in such cases. What you do not have is a written contract.

 

 

I agree with this succinct analysis.

 

The way in which you ascertain the terms of the oral contract is to write down exactly what you do and how you are engaged and paid.

 

Clearly there is a expectation that you will receive work and be paid for it on the one hand, and that you will attend and play for a fee on the other. This gives mutuality of obligation which is a pointer to employment.

 

If you wish to pursue your possible employment status seek a meeting with HMRC.

 

Barry Williams

[DHM]

[bombarde32]

Usually the Crematorium engages and pays the organist.

 

Barry Williams

 

Where I am, the FD books the organist - the crematorium has nothing to do with it.