VAT Services for Charities & Not-for-Profit

VAT for charities and not-for-profit organisations

In the main, a charity is treated like any other business for VAT purposes. Contrary to popular belief, there is no blanket VAT exemption for charities. In fact, the rules relating to charities can be more complex, and experience shows that HMRC can be particularly harsh on those that get things wrong.

That said, there are various reliefs and ways to structure a charitable organisation that may help to reduce its VAT exposure.

The Scrutton Bland VAT team is highly experienced in the not-for-profit sector and would welcome discussions with charitable organisations to explore the possibility of reducing the financial and administrative burden created by the VAT system.

Is your charity ‘in business’ for VAT purposes?

The term ‘business’ is not defined in VAT legislation. A charity may be seen to be in business for VAT purposes in fulfilling its primary purpose charitable objectives.

It is an important distinction because the charity will be within the VAT systems if it supplies goods and/or services which are deemed be made in the course or furtherance of a business activity.

Simply put, where there is a direct or sufficient ‘link’ between the supplies made and the payments received, the activity is likely to be considered a business one.

Partial exemption and non-business restrictions

Where a charity carries out both business and non-business activities, there is likely to be a restriction required to the level of input VAT it can recover on its costs.

Similarly, where both taxable and exempt business supplies are made (for example a sports club with a bar), a restriction is likely to be required.

Many charities will be in a position where both non-business and partial exemption restrictions are required. However, it may be possible to agree methods with HMRC to minimise restrictions and simplify calculations.

VAT reliefs on purchases

There is no general exemption for charities to avoid VAT on purchases. However, there are some useful reliefs which may be applicable, if claimed.

These include the placement and design of advertising media, supplies of fuel and power, some building works, the purchase of medical and scientific equipment etc.

There are also various HMRC Extra Statutory Concessions which zero-rate some common expenses.

It is always worth checking the VAT status of purchases as most suppliers will charge VAT to be on the safe side.

Talk to a specialist

Scrutton Bland has a demonstrable history of helping theatres and other cultural attractions, welfare institutions, membership bodies and associations, sporting teams and groups, charities operating in the educational sector etc. through the myriad of complex VAT legislation and HMRC requirements.

VAT is a significant issue for charities because, it can be a major cost if things are not reviewed properly from the outset and can have affect in both in the short and the long term – for example by applying the wrong rate to a supply made, or incorrectly paying (or not) VAT on the construction of a new building.

Implementing VAT planning and structuring recommendation from a specialist can potentially have huge benefits, or at the least provide peace of mind things are working as they should.

Get specific VAT advice

Get in touch for forward-thinking, impartial advice

Do you have a specific issue to discuss? Or are you interested in creating a long-term plan that protects your organisation’s financial future? We’re here to help provide the answers.