Member Since: 23rd Nov 2010
3rd Mar 2020
It's a debit to a fund.
1st Mar 2020
I think the first time this has arisen is because a) it relatively rare for their purchases to be capitalised as their policy is £2k but also b) that is even more rare where they get restricted funds for equipment/property. But also c) predominantly its the materiality that is the issue. If they bought say a server more than 2k the issue is gone in a few years and doesn't have any great impact whichever way you treat it overall. But this particualar point is a £500k building bought initalliy with restricted funds, the restriction is now extinguished so the asset is now now unrestricted, And so there's the thought from a trustee that they can now include depreciation in future funding bids. But I think, no they can't. Funds we're given for the purchase, so no matter where those funds now reside (unrestricted or restricted) the depreciation must go against the funds where they DO reside. In this case unrestricted.
So given the facts where would you charge the depreciation? Unrestricted? Or, other funds that could legitimately allow such cost.
28th Feb 2020
Yes, certainly depreciation could only be put to other restricted funds if those funds allowed depreciation to be charged. And yes, if a restriction has genuinely been extingushed then the profit on any sale could be used for any of the objects. But both these points are not the crux of the question though .
The crux is:
If the fund is transfered to unrestricted, (which we're saying can happen if the restriction is extinguished) and so we now have a fixed asset and an unrestricted fund - then must the depreciation also be charged now to unrestricted funds, because the funds that were given for the purchase have now been moved to unrestricted. Or.... because we now have an unrestricted fund the depreciation can go somewhere else subject to other funds restrictions allowing it.
I think it MUST go to unrestricted i.e it is not a choice, it is fundemantal to the rules of fund accounting because the funds were given for the purchase of a building and those funds must be allocated to that purchase via depreciation. However I just wonder if there is some sort of caveat whereby because the funds are now unrestricted then the depreciation no longer has to go the unrestricted funds but elsewhere.
I'm trying to argue the former against a client that wants to do the latter. But happy to be proved wrong.
26th Feb 2020
Hmmm... not sure I agree
Repairs to the building is a different cost to the purchase of the building. purchase cost is one and repairs is another. Therefore you are right it's not double funding in that scenario - it's two different costs funded from different sources. But that's not what I'm saying
You could conceivably put a provision into the ledgers for repairs and this provision could be allocated to the other restricted funds. That is separate to the depreciation. The depreciation is not a charge for repairs. The depreciation is simply expensing the purchase cost across it's useful life.
Now I understand why you would want do what you suggest in that it would increase the unrestricted funds by charging other restricted, but my question is - is that actually technically allowed? if we do that, we haven't actually expensed the cost of the building against the fund that was given for it. Fundamental to fund accounting, no?
Perhaps a rephrase -
Forget fixed assets policies. Lets say we don't have to capitalise the building. We receive the incoming funds and buy the building.
So Debit cash and Credit restricted income. And Debit revenue expense and Credit cash with the purchase
The debit expense would go to that restricted fund? or can it go to support costs and be allocated across other funds?
If it goes to other funds then we are left with a restricted fund balance at the end of the period for the donation of £500k which will never be expended. So if the restriction is satisfied (we bought the building) you would have to show a straight transfer from Restricted into Unrestricted i.e no record of expenditure against the fund. in fact no record of purchase in an accounting sense against that fund.
On balance then (reviewing my original question) - Should you leave it as a restricted fund until it is fully depreciated? even though the restriction was just to buy it. Because from an accounting sense you have not bought (expensed) it until it is fully depreciated.
26th Feb 2020
For the benefit of future readers 3.8 here https://www.gov.uk/guidance/vat-when-you-supply-services-or-goods-to-cha... confirms the answer above
19th Jun 2019
Thanks for your replies.
just musing really - I'll just use 260, which favours the EE
16th Apr 2019
Thanks for this. Interesting. Of course you cannot take one without the other but I disagree that just because something "looks like" an office, it doesn't mean HMRC see it as an office the sense of the Act
There is no definition of office in the Act but in the HMRC Land & Property manual
"Meaning of ‘office’
‘Office’ is not defined in Schedule 10, but HMRC’s interpretation is that office used in this context means use for the administrative functions of the charity that are similar to those carried out in other organisations, such as personnel, payroll and general administration of the charity as a whole. For example, a building used as the administrative headquarters of a charity is considered an ‘office’, unlike a charity call centre set up solely for the purpose of collecting voluntary donations."
So the call centre operatives work in a office - this is not an "office" in the sense of the Act, this is charitable activity carried out that happens to be in a building that they might internally call an office - the disapplication would apply to this.
The administrator photocopying client documents is not general administration, it is specifically required to carry out the objects of the charity, to relieve the debt by copying and sending the docs to the creditors.
15th Apr 2019
Many thanks for your replies.
Although it says 'relevant charitable purpose' it is referring to business/non business use - definition of it is in VATA 1994 schedule 8, group 5, note 6.
Actually having read on from there (note 10) it is clear that an apportionment can be made.
It doesn't go so far as to define an appropriate apportionment but I guess floor space is appropriate?
The de-minimus office 5% is difficult to define in a charity, I find. - say in a debt charity - is an administrator who photocopies client documents for sending off to creditors, "office" or is it charitable activity. I'd say the latter. But the finance officer who processes the payroll for the debt caseworker - office? It's all a bit grey...
hey ho, one for another time... in my case now I can justify the 5% as being de minimus
15th Apr 2019
Thanks for your reply.
That's what I'd hoped. So for instance, if it is specific rooms where staff work then floor space allocation. And presumably shared spaces would be ignored from the pro rata %.
If it's open plan, perhaps workstations?
Is it the sort of thing that HMRC would be able to approve, a bit like. Special Method? To ensure they are happy with the approach.
Or is it actually up to the landlord to approve as they have to satisfy themselves of the correct vat treatment of the sales?
6th Mar 2019
perfect thanks. I shall take a look