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• Registration
• Taxable Supplies
• Recovering VAT
  • Should I register even if I don’t need to ?

Value Added Tax is governed by very complicated legislation. It is presently administered by Her Majesty's Revenue and Customs (HMRC). They have long defended their right to view each organisation on its own merits. As such it is difficult to give specific advice to the voluntary sector. Here we aim to give a brief general overview of VAT and how it may affect your organisation.

An organisation is not required to register for VAT until its taxable supplies (business income) reaches £68,000* in a rolling twelve month period, but it may register voluntarily.

An organisation can register as long as it has taxable supplies.

A taxable supply is essentially the sale of goods or a service and :

1) is made in exchange for a payment or payment in kind

2) occurs with some frequency

3) continues over a reasonable period of time

There are 5 different types of supplies:-

1. Taxable - Zero rated , 0% e.g. sale of donated goods.
2. Taxable - Standard rated 15.0% e.g. training & consultancy services
3. Taxable - Reduced rate 5% eg fuel for domestic/charitable use
4. Exempt - business supply but not considered as ‘taxable’ e.g. welfare services provided for elderly people other than for a profit
5. Outside the scope of VAT - ‘non-business’ e.g. Grants, legacies and donations

Once you are VAT registered you have to charge VAT at the relevant rate on your taxable supplies i.e. things you sell that fall in to 1,2 and 3 above.

Registration is not the green light to recover all the VAT you have incurred. VAT can usually only be reclaimed where it relates to the activities on which you charge VAT, e.g. if you sold consultancy services.

Some VAT may be reclaimed on exempt activities subject to some special rules.

VAT cannot generally be recovered on non-business activities, such as grant funded activities.

There are some special VAT reliefs for goods bought for people with disabilities.

If you are thinking about a voluntary registration you need to consider whether you will be able to claim back sufficient VAT to justify:

• charging VAT to clients who may not be able to reclaim it eg. VAT on a training course you deliver and,

• increased administration and accounting costs

• penalties and surcharges if you get it wrong

If you are primarily grant funded you may not be able to reclaim very much VAT and all things considered it may not be worth registering if you are below the threshold. Where your funding is a mixture of fees, grants and contracts the balance is even more complicated. For charities who are ‘trading’ you may have no choice but register.

HMRC has a useful leaflet No 701/1/95 which gives details of VAT issues specifically relating to Charities

If your income excluding grants and donations is approaching the registration limit, currently £68,000, seek specialist advice. If you choose to contact HMRC yourself, keep a copy of all correspondence.

* Watch out for changes in future budgets