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Steve Allen of VAT Advisers Ltd provides some useful VAT pointers for charities.

1. Are you Operating as a Business?

The fundamental question is - does my organisation operate as a business in any way? If it doesn't, you won't be able to recover any VAT on any of your costs. Despite seeming like a simple question there are grey areas that need to be taken into consideration. Examples include providers of funding who require services in return, such as local authority or government bodies. Where this is the case, you will need to take a closer look at the arrangements to find out if VAT is chargeable on the value of the services. If it is, VAT recovery on the costs will be possible.

2. Are you VAT-Registered?

Certain types of charity have never registered for VAT because the majority of their income is deemed to be non-business or exempt from VAT. Voluntary VAT registration can be beneficial in some cases, particularly where the charity receives zero-rated income (e.g., sales of donated goods or the provision of newsletters to members), as this allows VAT recovery on costs without any VAT being payable on income. A voluntary registration can be done retrospectively too, going back up to 4 years from a current date.

3. Could any Services Provided to Members be Liable to VAT?

Some services offered by charities through subscriptions could be liable for VAT. It is therefore wise to analyse the individual services that are on offer to find out if the correct VAT liability is being applied. For example, newsletters and handbooks are good examples of supplies that could reduce the VAT payable on the subscription and increase VAT recovery on expenditure.

4. Do you Undertake any Fundraising?

If you raise money by running a fundraising event, the proceeds will not be liable for VAT. So, income generated from a dinner dance, bars, catering, and sponsors are all exempt from VAT, provided their aim is to raise money for your charity. This income also remains exempt in the hands of a trading subsidiary, which can Gift Aid the profits to the charity free of Corporation Tax.

5. Do you do any Advertising?

In recent years, zero-rating has been extended to include all advertising, including recruitment ads. The services used to produce the ads, such as design agencies or photographers, can also be zero-rated, which means you won't incur irrecoverable VAT. It is also worth noting that there is no obligation to name your organisation in the advertisement to benefit from these rules. [ See Steve's separate article - Charities - Make Sure You Don't Pay VAT on Advertising Costs - Ed. ]

6. Do you Charge Admission Fees?

If you are a cultural organisation that charges admissions fees for entry to museums, stately homes, theatres etc., you should be able to exempt the ticket prices if the managers of your body are essentially voluntary and unpaid (e.g., a group of trustees). If VAT has been incorrectly accounted for, you may be able to claim a repayment of that VAT.

7. Are you Constructing or Buying New Property?

If you are constructing or buying new premises, you could benefit from zero-rating depending on how the building is going to be used. To qualify, you must either provide services to the local community, or use the building for non-business purposes. You can benefit from different VAT treatment for different parts of the building, according to how it is to be used. In addition, zero-rating can be available for some new annexes, provided they are self-contained and have a quite separate main entrance. You would be well advised to think about the future use of new buildings at the planning stage, to ensure that any eligibility for zero-rating is maximised.

8. Are your Premises Listed/ What do you Use the Building for?

It’s a misconception that zero-rating is widely available to works carried out on listed buildings. Eligibility for relief depends on the use of the building, and it should be noted that zero-rating can only apply to buildings which will either remain or become residential or charitable use buildings after the works are completed. As such, commercial listed buildings are excluded.

9. Are you Making your Building Accessible for the Disabled?

If you are planning to make alterations to your premises to make it more accessible for the disabled, there is scope for zero-rating. All charities can take advantage of this, as it is not necessary for you to be a provider of services to disabled persons to get the relief. Zero-rating is usually available on the following works:

• widening of corridors and passages
• the installation of ramps or lifts and
• the provision of a washroom or toilet.

The building work should be apportioned to ensure VAT is not charged on qualifying works.

10. Finally, What happens if you Ignore VAT Regulations?

If you ignore the tips listed above, you could miss out on opportunities to improve your VAT situation. Ultimately, this translates into a shortfall in the funds available for your charitable activities. The worst-case scenario is that errors are being made which could lead to penalties from HMRC. Either way, VAT is not something that should be ignored, or left to look after itself!