VAT and charities

The VAT affairs of many charities are complex.  Every business is required to establish the VAT treatment of its supplies (standard rated, zero rated or exempt) but it is likely that charities will have significant non-business income.   For example from grants and donations.  A charity may consider itself "in-business" to raise such funds but faces the prospect of being unable to recover the VAT suffered on its costs.  However, as was established by the High Court case in Church of England Children's Society, VAT recovery is possible if the underlying purpose for incurring costs is taxable, albeit that the immediate reason for incurring the cost is not (acknowledging donations in the above case).

However, in addition to all the above considerations is a whole complexity of reliefs built up over the years which are only available to charities or other non-profit making bodies.  Some of the reliefs (such as receiving zero rated advertising) are of wide application whilst others (for example, the zero rating of costs incurred in transporting the disabled) are very specific.

But it is not only charities which can benefit from the special provisions.  For example, some non profit making bodies are receiving significant VAT refunds following application of the concession to apportion subscriptions and VAT.  In addition, there are circumstances where claims are not subject to the three-year cap.

Martin Gregory at BKL Tax has been advising the sector for many years and if you wish to discuss any aspect of the impact on VAT on charities and other non profit making bodies then please contact him at martin.gregory@bkltax.co.uk. 

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