CHARITY VAT
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 specifics, a charity may be making 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 various special VAT rules and reliefs available which are often misunderstood or overlooked by charities. It is regrettable that the UK VAT legislation is complex, burdensome and difficult to understand for non-specialists, and this exposes charities in particular to levels of risk, whereby VAT may be overpaid or underpaid. VAT-registered organisations may be incorrectly overpaying or underpaying Output VAT on income, or overclaiming or underclaiming Input VAT on expenditure, due to the complexity of the VAT rules - and support/advice from a suitably experienced VAT specialist may be invaluable for such an organisation.
Over many years, Expert VAT Services' director and VAT advisor Iain Johnston has worked with a large number of charities (large and small - from international organisations with annual turnover of £5million or more, to local charities with five or six-figure annual incomes) and covering a wide range of sectors, to resolve VAT issues and to advise them in respect of VAT. Specialisms include: VAT reviews; VAT advice to staff; VAT registration options/scope; VAT liability of income; VAT recovery on costs and VAT savings opportunities; VAT risk areas; detailed reviews of the charity's VAT position and options; grants vs supplies of services; construction projects; community buildings; partial exemption and business/non-business apportionment; land/property; trading subsidiaries (e.g. for a café or other trade); zero-rating reliefs; HMRC VAT assessments; VAT Grouping; and disputes with HMRC. Regarding the latter, two examples (from 2018 and 2020 respectively) of Iain's success in negotiations with HMRC on behalf of charities were:
- A small local charity was subject to an HMRC VAT enquiry. HMRC identified issues with the charity's VAT position and the charity sought advice. Following extensive citing of VAT caselaw and VAT legislation, a VAT assessment expected to exceed £90,000 + penalties was reduced to less than £20,000 and no penalty for this 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.
- The successful challenging of HMRC through a robust and detailed defence, again involving relevant VAT caselaw, in a dispute involving a 'grant' which HMRC initially argued was a VAT-taxable supply of services in return for funding (and thus within scope of VAT); 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 outside-the-scope grant or a VAT-taxable supply contract for services subject to VAT.
If you are seeking VAT advice for your charity, either with a specific query or for a review of your overall VAT position, please do not hesitate to contact us. Iain particularly enjoys working with charities throughout the UK on VAT-related matters and is genuinely passionate about assisting charities regarding their VAT position and giving them clear advice on this difficult topic.