On Tuesday 23 July, the Chambers Charity Network was launched with an event which featured opportunities to network and expert insights from Chamber partner Xeinadin at their Cardiff office. In ‘VAT: It’s a simple tax!’, Andrew Shrimpton and Liz Maher explored the role of VAT for a number of charities, offering insights and advice for how they can handle their taxable activity.

Breaking it down – business and non-business activity:

For most charities, a lot of their activity will be exempt from VAT, but there is still some zero-rating available for them, so Drew and Liz outlined the crucial difference between business and non-business activity.

Donations, grant funding and sponsorship are likely to be non-business activities and, therefore, no VAT is chargeable. Non-business activity can block the right to recover input VAT that is incurred on costs associated with that non-business activity. Any donations, grant funding and sponsorship must be freely given and nothing, other than a small token gesture, can be done in return for those funds, otherwise the activity becomes a business activity and VAT could be levied.

Exemptions and zero-rate:

When assessing whether activity qualifies for VAT, it is imperative to understand the difference between VAT exemption and VAT zero-rate.

Although both zero rate and exemption result in no VAT having to be levied on supplies, an exemption will block input VAT from recovery while a zero rating would result in the input VAT being recoverable. This was discussed in great detail so that the charities in attendance could understand the difference and were able to actively look at their own supplies with confidence and determine whether there was scope for zero rating.

The duo delved deeper to outline the fundraising exemption, a crucial factor for charities as this is the VAT treatment that will apply to a large part of their supplies. For the exemption to apply, there are certain conditions that should be met including:

• The event must be organised by the charity or in collaboration with another charity with the primary purpose for raising funds, and it must be advertised as such.
• The organisation must not hold more than 15 events per year of the same kind in the same location. A charity’s website is considered to be a location for the purposes of the exemption and, it is likely that any associated third-party websites used to assist with the delivery of the online event, would also be considered a single location.

VAT registration – what are the benefits?

More often than not, charities do not want to be registered for VAT because they do not fully understand the benefits. Drew and Liz discussed how a VAT registration could benefit a charity’s endeavours by enabling partial VAT recovery on costs that would give them back more of the previously blocked input VAT.

However, the pair’s guidance is always to weigh up the pros and cons, and the downside to registration is that the charity would have compliance obligations and need to complete partial exemption calculations each quarter. Nevertheless, the £90k VAT registration threshold is always applicable for trading activity, and services bought in from overseas businesses that are subject to the reverse charge can count toward the £90k VAT registration threshold.

Reliefs and certificates:

Completing the session, Drew and Liz discussed the reliefs available to charities and how they can obtain certificates from HMRC’s website that can be downloaded, completed and provided to a supplier giving them the ability to zero rate their supply to the charity. This is relevant whether a charity is registered for VAT or not and can help to reduce the cost of buying goods or services by 20%.

The key takeaways for charities:

We hope that the charities that attended left with a greater understanding of how they can navigate the often uncertain waters of VAT, recognise when their activity does and does not qualify, and see that it really is that simple! It was an honour to launch the Chambers Charity Network, which is set to host a range of beneficial events for charities and not for profit organisations, with our partner Xeinadin.