Funeral Directors – Getting The VAT Right
Funeral directors make supplies which, for VAT purposes, are traditionally a combination of standard rated taxable supplies and exempt supplies. When a mixture of taxable and exempt supplies are made by a business, this gives rise to partial exemption calculations to determine how much VAT can be reclaimed on costs incurred in relation to the exempt supplies and general overhead costs.
The disposal of remains, and the making of arrangements for or in connection with the disposal of remains is exempt from VAT. However, if a funeral package is supplied then the package should be apportioned between the exempt elements (e.g. supply of coffin, hearse hire) and the standard rated elements (e.g. flowers, headstones), and VAT charged on the standard rated element. VAT on costs incurred in relation to the exempt supplies would not normally be reclaimable, however, a partial exemption calculation will determine what proportion of that VAT, if any, is recoverable.
If you also pay third parties, such as hotels and caterers, for goods or services and simply pass on these costs to the client with no profit element then you may be able to treat these as disbursements for VAT purposes. Disbursements can be excluded from VAT calculations meaning clients don’t have the additional burden of extra costs.
While partial exemption calculations can be complex, we can offer advice or support you through the uncertainties. To discuss any issues surrounding VAT calculations, please contact our VAT Taxperts.