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 The VAT affairs of charities can be complex. A common misunderstanding is that if an organisation is a registered charity or not-for-profit organisation, then they do not need to account for VAT on any of their income. This is not correct and, subject to the detailed rules, a charity may make 'taxable supplies' that are subject to VAT and being aware of this and the implications is vital from a finance and planning perspective. There are also special charity VAT rules and reliefs available.

Our VAT Specialist and Director Iain Johnston has worked with numerous charities, large and small and covering a wide range of sectors, to resolve VAT issues and to advise in respect of VAT on their activities (for both income and expenditure). Particular specialisms include grants and contracts for services; construction projects; partial exemption and business/non-business activity; trading subsidiaries (e.g. for a cafe or other trade); zero-rating reliefs; HMRC VAT assessments; and disputes with HMRC.

Two recent examples (from 2018 and 2020 respectively) of Iain's success in negotiations with HMRC on behalf of charities were: 

(1) Following extensive citing of caselaw and legislation, the reduction of a VAT assessment expected to exceed £90,000 + penalties to less than £20,000 and no penalty for a small local community charity who had inadvertently made numerous errors on their VAT Returns over a number of years, involving complex areas of Partial Exemption, Capital Goods Scheme clawbacks, and Sports/Education special rules. This significantly lower than expected assessment allowed the charity to continue operating, to the benefit of their local community.

(2) The successful challenging of HMRC through a robust and detailed defence, again involving relevant caselaw, in a dispute involving a 'grant' which HMRC initially argued was a 'contract for services; the charity was saved from a VAT assessment of up to £116,000 in this complex case involving detailed reviews/arguments with a fine distinction between the charity's income being deemed either a VAT-free grant or a 'taxable supply' contract for services subject to VAT.

If you are seeking VAT advice for your charity, please do not hesitate to contact us. In particular, if you are engaging in a property transaction, consulting a VAT Specialist for a review of the matter (or to discuss any VAT implications) may be beneficial.