Claiming input VAT for mixed income charity

[B Johnson]

I have just joined a charity which runs a number of events and receives funding from grants, sponsorships and ticket sales.

For VAT purposes the sponsorship and ticket sales are vatable and output tax is recognised. The grants are considered a non business activity as the grantor receives nothing in return for his support. Therefore no output VAT is recognised on the grant.

When it comes to recovering input tax on the costs of running the event do I have to use the apportionment method to calculate the amount attributable to business and non business (non taxable) activities ...... even though the output tax on the ticket sales and sponsorship far exceeds the input tax charged by the suppliers?

OR.... can I attribute all the input tax directly to the business elements of the activity?

Many thanks in advance

BJ

[les35]

You should use a BNB (Business Non-Business) method to determine how input tax is to be claimed. This is similar to Partial Exemption.
This link takes you to HMRC Internal Guidance: https://www.gov.uk/hmrc-internal-manual ... /vbnb30000

[B Johnson]

Many thanks for pointing me in the right direction les35. Much appreciated.

I think where I have the difficulty is in identifying how much cost (and of which nature) we can regard as "directly attributable". The charity has always considered that the grants are used to cover the salary costs and the sponsorship and ticket sales to cover direct production costs.

It seems we should not take this view, although there seem to be no hard and fast rules on

a) how costs should be attributed either directly to activities or the "residual" pot
b) how the residual pot is apportioned to business/non-business.

Do you have any views on that?

Thanks again

BJ

[les35]

1. How is input tax attributed? See HMRC Notice 706, para 3.2 for an explanation of this. It is a matter of fact, which should be demonstrable, for example by your accounting data.
2. How is the residual pot apportioned? The default method is outputs based. But this often penalises a charity whose incoe is largely grants and donations. Any 'fair and reasonable' method is allowed, e.g: staff time, room space, etc. But beware lest the cost of carrying out the calculation each quarter out-weigh the additional input tax recovered.
PM me if you wish to discuss further.