VAT implications for charities
17 June 2014
Your future. Figured.
Charities income sources
Income received by a charity falls into two categories for VAT purposes:
- Non business income
- Business income
- Taxable (including zero and reduced rates)
- Exempt
Determination of ‘supplies’ of goods and services
Your future. Figured.
Common errors when determining if
income is business income
- ‘for the benefit of the community’ argument - can not rely on this argument for
why it is not subject to VAT
- Income labelled as a ‘Grant’ - must consider the substance of the transaction has there been a SUPPLY made by the charity in return for CONSIDERATION
(Bath Festivals Trust v. HMRC) (Keeping Newcastle Warm v. HMRC)
- Service Level Agreements from Councils - KPI’s, reporting requirements,
terms and conditions of receiving the income
- Income received from Intermediaries e.g. University which was received as a
grant by the Intermediaries (therefore deemed as non business income by the
University) but when passed on the charity becomes a taxable supply for VAT
purposes due to additional requirements set by the University
- Income received from a third party, who is not receiving the service from the
charity (Groundwork Cheshire v. HMRC)
Your future. Figured.
Common types of ‘business’ income
- Advertising income
- Admission charges
- Catering
- Sale of goods - bought in and donated
- Rental income
- Accountancy and payroll services
Your future. Figured.
What are the implications of a
charity receiving business income
- Is the income taxable?
- Does the value of the taxable income exceed £81,000?
If the answer is yes to both of these questions - the charity must register
for VAT and VAT must be charged on taxable supplies
If the value is less than £81,000 - would voluntary registration be
beneficial?
Your future. Figured.
Can VAT registration be beneficial for
charities
- Allows recovery of input VAT on costs relating to the taxable supplies
made by the charity
- Where VAT is charged to Councils, Schools and Academies, Local
Authorities or the NHS they are usually able to recover the VAT in full
and so are not adverse to VAT being charged meaning no cost to the
charity of VAT registration
FURTHERMORE IF YOU DONT REGISTER AND YOU SHOULD HAVE
BEEN, YOU MAY INCUR INTEREST & PENALTIES ON NET
UNDERPAID VAT OVER THE LAST FOUR YEARS
Your future. Figured.
Reliefs available for charities
- Zero rated supplies made by a charity
- Donated goods
- Disabled goods
- Zero rated supplies made to a charity
- Advertising
- Construction of buildings used for RCP
- Adaptations to buildings for disabled/handicapped
- ‘Relevant goods’
- Reduced rate supplies made to and by a charity
- Fuel and power
- Welfare advice and information
Your future. Figured.
Cost sharing exemption
- What is it?
- separate body consisting of ‘members’
- When can I use it?
- ‘Members’ of a CSG
- ‘Directly necessary’ services
- Why would I use it?
- How do I use it?
Your future. Figured.
Contacts
Phil Luty CTA
Indirect Tax Partner
Email: pluty@dains.com
DDI : 0121 200 7904
Mobile: 07944 492809
Sarah-Jayne Hughes CTA ACA
VAT Assistant Manager
Email: shughes@dains.com
DDI : 0121 200 7934
Mobile: 07528 970205
Your future. Figured.
Questions
Your future. Figured.