VAT implications for charities 17 June 2014
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
Common errors when determining ifincome 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)
Common types of ‘business’ income • Advertising income • Admission charges • Catering • Sale of goods - bought in and donated • Rental income • Accountancy and payroll services
Whatare 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?
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
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
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?
Contacts Phil Luty CTA • Indirect Tax Partner • Email: email@example.com • DDI : 0121 200 7904 • Mobile: 07944 492809 • Sarah-Jayne Hughes CTA ACA • VAT Assistant Manager • Email: firstname.lastname@example.org • DDI : 0121 200 7934 • Mobile: 07528 970205