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Andrew Needham provides a run-down of helpful VAT ideas for Charities.

Andrew Needham

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.

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.

6. Do you charge admission fees?

If you are a cultural organisation that charges admissions fees, you would previously have charged VAT. A recent European Court ruling now says a charity will be able to exempt their ticket prices if its management is unpaid e.g. a group of trustees. This may mean museums, stately homes, theatres, and similar organisations are eligible to claim a repayment of 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 is available for some 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 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. There are opportunities for VAT relief but the use of the building is the main issue in determining the extent of relief available. There is zero-rating for residential listed buildings but short-term accommodation is 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!