SAIF Golden Charter

UK200: value added – what about tax?

Funeral directors tend to consider VAT is something which doesn’t apply to them because the starting thought is that their services are exempt from VAT. Historically this would have been a safe decision because VAT Notice 701/32 says:

The following goods and services are exempt from VAT when provided by an undertaker or funeral director as part of a funeral package that includes the disposal of the remains of the dead:

• Supply of a coffin
• The cover and fittings for a coffin
• The casket, urn or scatter tube
• Embalming
• The digging, preparation and refilling of graves
• The transport of the deceased to the burial ground or crematorium
• A shroud or robe
• Use of a chapel of rest
• Provision of bearers
• Transport of mourners in limousines
• Bell tolling and music at the funeral service

However, as the drive to provide customers with a better and more inclusive service, coupled with attempts to make better margins from other items often associated with a funeral such as catering and items associated with commemorating the dead, care needs to be taken.

Historically many such items were included in the funeral director’s bill but were merely costs incurred by the funeral director and passed on – disbursements – and therefore could be ignored for VAT purposes. The issue is that increasingly there is a move from being a disbursement to becoming a provision and many are ignoring or not considering what a disbursement actually is if you are an agent of your client and you recharge your client for the precise amount paid out.

As soon as the amount charged to the client is different to the precise amount paid out then VAT could become an issue – so, if the funeral director gets a discount on settlement to a supplier and it is not passed on to the client, that payment ceases to be a disbursement, but becomes a service provided and could be a VATable supply.

Again, historically for many funeral directors, the amounts falling into this area could be small enough to be below the VAT registration limits, but with more clients looking for a one stop shop, and the desire of the funeral director to deliver that excellent service and to improve margins we need to ensure VAT rules are not broken.

There are ways of minimising VAT exposure which may mean registration is not required but some may not be compatible with business objectives. So initial advice is ensuring you familiarise yourselves with VAT notice 701/32 and if in any doubt at all take advice. Partial exemption rules for VAT are quite complex and can work in your favour but getting it wrong can be expensive.