'Im a charity and I don't pay VAT' - myth or reality?

WCVA Charity Law Conference 2013:
I’m a Charity and I don’t pay VAT: Myth or Reality
Liz Maher

The Team
(C) Centurion VAT Specialists Ltd 20132

Agenda
– What’s the Reality
– Charities
– Non Business Impact
– VAT Reliefs
– Grants v Contracts
– Collaboration: The VAT issues:
– Differing VAT Regimes: NHS Trusts/local authorities/Gov’t Bodies
– New Legal Entities
– Cost Sharing Exemption – how could it benefit you?

What’s a Charity for VAT
purposes?
• Definition introduced from 1 April 2012
– A body of persons or trust that is established for charitable purposes
only and:
• Falls under the jurisdiction of the High Court;
• Complies with any requirement to be registered under Charities
Act 2011, s 29;
• Is managed by fit and proper persons

What’s a Charity for VAT
purposes?
• Social Enterprise?
• Industrial & Provident?
• Companies Limited by Guarantee?
• Does it have charitable status?
• Unregistered Charities?

Unregistered Charities
• Need to demonstrate:
– “charitable status”
– Achieved by looking at their written “objects” or by recognition of
their charitable status by HMRC

Trading for VAT purposes?
Primary
Or
non Primary
Or
Business
Or
Both

Business and Non-business

Income Generation & VAT
• VAT is a tax on transactions undertaken in the course of
business
– Goods
– Services
• Accounting for VAT on income:
– right amount of tax declared at the right time

What sort of business
supplies could a charity make
• Rent out office space or function rooms
• Selling goods
• Membership charges
• Selling or leasing buildings and land
• Selling tickets to a fund raising event such as a dinner/concert
• Sponsorship income
• Advertising income
• Delivering vocational training/education for a charge
• Being paid to provide welfare advice or welfare services
• Seconding staff
• Shared services recharges

VAT Treatments:
Business Activities:
• Taxable:
– Standard (20%)
– Reduced (5%)
– Zero (0%)
• Exempt
Non Business Activities:
• No VAT charged on income
• No VAT recovery on costs supporting non business income areas

Non Business Income
• Grants
• Donations
• Legacies

Business/Non Business
• Benefits and disadvantages
• Benefits include:-
– VAT relief on building costs
– Reduced rate fuel
– Charity reliefs
• Disadvantages include:-
– Substantial loss of VAT
– Administrative burden

Charity Reliefs

Special Reliefs for supplies
by Charities
Z/R R/R Exempt
Sale of Donated Goods X
Fundraising Events X
Welfare Services X
Welfare Advice X X
Sporting Services X
Cultural Services X
Education & Vocational
Training
X
Advertising Income X X

Welfare Advice: Reduced
Rate
• Effective from 1 July 2006
• Supplies by a charity or state regulated private welfare agency or
institution
• Advice relates to mental or physical welfare of elderly, sick distressed, or
disabled persons (home safety).
• Not goods unless they convey the advice ( CD’s with information in).
• Advice provided solely to an individual for their own benefit is VAT
Exempt.
• Free welfare advice is a non business activity.

Mobility Aids for the Elderly:
Reduced rate
• Effective from 1 July 2007
• Services of installing “mobility aids”
• Supply of “mobility aids” by person installing them.
• Used in domestic accommodation by a person aged 60 or
over at time of supply
• Not goods alone; repairs or replacements once installed;
installed in care homes or similar.

Special reliefs for Purchases
by Charities
• Construction of new building for non-business use by a
charity or use as a village hall or similar
• Certain work on protected buildings
• Certain aids and adaptations for disabled or chronically sick
people
• Drugs for use in medical treatment or research
• Certain vehicles adapted for the carrying of wheelchairs or
stretchers

Special reliefs for Purchases
by Charities cont.
• Advertising and goods connected with collecting donations
• Equipment for medical use e.g. for donation to an NHS
hospital
• Fuel and power for qualifying use
• Supply and installation of energy saving materials (infraction)
• Sea rescue equipment
• Equipment for producing talking books and newspapers

Fundraising Activities
• Grants
• Donations
• Legacies
• Sponsored events and charity challenges
• Raffles, prize draws etc
• Affinity credit cards

Grants v’s Contracts

When is a Grant not a Grant
• Is the payment freely given?
• Does it entitle the giver to any benefit or right?
– Aberdeen Sports Village Ltd
– Hope in the Community
– Groundworks Cheshire

Collaboration Issues
• Differing VAT Regimes
• Creating legal entities
• Cross charging between Charity bodies
• Cost Sharing Exemption

VAT Cost Sharing Exemption

Principles
• Used by a wide variety of sectors
– Charities, Universities, FE Colleges, Housing Associations, Residential
Care Homes, Banks, Insurance Companies
• Straightforward to operate, minimising compliance & admin
• Does not create opportunities for abuse or avoidance
• No standard EU implementation: each State different
methods

CSG Model: Supplies
Staff
costs
Staff
costs
Other
costs
Other
costs
26

Key Conditions:
• HMRC’s definition of an “independent group of persons”
• All members must carry on exempt or non business activities
• HMRC’s definition of “ directly necessary” supplies
• Direct re imbursement of costs condition
• Distortion of competition condition

General Provisions:
• Applies only to qualifying services which are directly
necessary for the exempt/non business activities of qualifying
members
• Does not cover goods
• CSG can include overseas members
• A CSG could be a charity if it qualifies
• If a public body is a member it will have to consider whether
the EU Procurement Directive applies to its purchases from
the CSG

CSG Model: Legal Structure

Independent Group:
• Established, owned by members for their co operative benefit
• Can be equally controlled
• One or more members may have control
• All must have a legal interest
• Min 2 members no maximum
• No shares held by some one not a member

Independent Group cont:
• Legal form choice of members;
– For profit partnership – exemption applies to qualifying supplies
– Limited partnerships – all partners limited & general must qualify
– Unincorporated Associations
• Care when recruiting members – distortion of competition issue
• Use to which members put the services must be verified by CSG
• All members must receive Group 16 supplies
• 12 month rules on membership if supplies cease to be made to a member

Exempt and/or Non business
• All members must have exempt and/or non business activities
• Qualifying Membership Test:
– 5% or more exempt/non business in immediate 12 months prior to
joining or,
– Last completed Partial Exemption/non business year or,
– Clear intention to receive and does receive qualifying services in next
12 months from date of joining and,
• Supplies are used directly within 12 months of receipt by member
for 5% or more exempt / non business onward supplies

Exempt and/or Non business
con’t:
• Do not have to be VAT registered to join but must meet
qualifying membership test or intend to within 12 months of
joining

Directly Necessary Services:
• Directly Attributable rule applies
• Mixed use services will not qualify
• Simplification rule:
– Negligible level of taxable supplies = less than 15% taxable activities
– Past or intention to meet in next 12 months rule
– All supplies received from CSG will be exempt
• Practical application based on Return data/ Partial Exemption/
Business/non business calculations
• If “intention to meet” in next 12 months fails (only allowed to look
forward once)
• Sectorisation possible to meet 15% rule

Direct Re imbursement
• No margin added to establish recharge cost to secure
exemption
• Reimbursement of costs includes:
– Cash payments/liabilities
– Costs incurred but not invoiced (accruals)
– Amounts to meet future anticipated expenditure
– Depreciation in value of CSG assets
– Charge to build capital fund to purchase an asset
• Care regarding recharges for management services
• Interaction with Transfer Pricing regulations

Distortion of Competition
• A CSG is a cooperative self supply not an outsourcing
arrangement
• Should be no competition in a marketplace
• If all conditions are met there should be no distortion of
competition issue
• Must have no “characteristics of an independent operator
seeking a customer base in order to generate profits”

Top Tips for Charities:
• Be clear on the nature of arrangements with funding from funders including public bodies
and understand the impact for your organisation. Ensure those with responsibility for
agreeing arrangements are VAT aware.
• Identify your business activities and the VAT liability of them.
• Review taxable income values at each month end.
• Address VAT liability before the income generation starts.
• Periodic Review Nominal Ledger for qualifying costs.
• There can also be serious negative consequences for a charity in moving from a grants to a
contract culture. Some of the specific VAT reliefs for charities only apply for non-business
activities. In particular the zero rating for new buildings and the reduced rating for fuel and
power.
• Set up a property asset Register and review the use to which any building constructed within
the last 10 years is now put where it had originally securing zero rating on the build costs by
use of a zero rating certificate for non business use.

QUESTIONS

'Im a charity and I don't pay VAT' - myth or reality?

Recomendados

Recomendados

Mais conteúdo relacionado

Semelhante a 'Im a charity and I don't pay VAT' - myth or reality?

Semelhante a 'Im a charity and I don't pay VAT' - myth or reality? (20)

Mais de walescva

Mais de walescva (20)

Último

Último (20)

'Im a charity and I don't pay VAT' - myth or reality?