What are the VAT considerations for the Charities sector?
Charities and not-for-profit organisations come in many shapes and sizes but what is common to them all is that VAT is a burden, both in terms of understanding which income streams are liable to VAT and what they can and cannot reclaim as input VAT on their expenditure.
The first consideration for a charity is whether they are in business for VAT purposes, which has much wider a definition than one would expect. Recent developments in this sector have moved away from the use of business to the term ‘economic activity’ and creating a connection between supply and payment and many more charities now find themselves defined as businesses than was historically the case.
That is not always a bad thing though as the ability to reclaim VAT on expenditure relies in the first instance on being in business and where a charity makes supplies to a VAT registered entity, being VAT registered can be of positive financial benefit to the Charity.
Having established that they are in business, the Charity’s next hurdle is to navigate the many potential VAT exemptions that may apply to their activities. VAT Act 1994 Schedule 9 comprises16 separate groups that are exempt from VAT and charities and not for profit entities commonly have activities within 9 of these 16, only one of which – Group 12 ‘fund raising events by charities and other qualifying bodies’ is specifically and exclusively for this sector.
Some of the exemptions only apply to registered charities whilst other are more widely applied to not-for-profit bodies but the definitions of these terms vary between the groups and so interpreting the legislation for the specific circumstances of each charity is key to getting the VAT treatment right.
What are the potential benefits of discussing VAT?
Firstly, charities need to be compliant to protect their charitable status but of equal importance is protecting their financial stability which an unexpected VAT bill can seriously jeopardise.
On the flip side, structuring a charity so that it minimises its VAT exposure, either through VAT registration or by recognising where VAT savings on expenditure can be made, is fundamental to good governance.
Charity trading subsidiaries, VAT registration, group VAT registration and tightening of memorandum and articles of association are just some of the ways I can help charities, along with unravelling the jargon and translating VAT into plain English which is something I take particular pride in doing.
What types of businesses may benefit from discussing VAT?
As I have said, charities come in many forms but whether they work in one sector or across several, have income of a few hundred thousand pounds or millions, the VAT complexities apply.
If you are VAT registered but think you might be getting your VAT wrong or are not registered and want to understand if you should be or would benefit from registering voluntarily, we can help.
What is our experience of working with the Charities sector?
We have worked with and continue to work with charities in the following sectors:
Membership bodies
Healthcare providers
Research bodies
Welfare providers
Education charities
Religious bodies
Philanthropic investors
Animal rescue charities
Charity shops
