VAT and Charities
Although charities and not-for-profit organisations do benefit from certain exemptions under the VAT legislation, despite what many people think there is no general VAT free status afforded to charities. As a result, charities of all sizes need to be very careful that they comply with all the VAT regulations and account for VAT correctly and Moore Stephens Peterborough are able to advise on the best way to do this.
Charities that run a business activity that earns them income have the same rules applied to them as any other business, if the income from the business activities reaches the VAT registration limit (£77,000 in any 12 month period from 1st April 2012) then the charity must register for VAT. Note that this is only for business income, any non-business income such as donations can be ignored when looking at the income for registration.
For VAT registered charities, the calculation of what input VAT can be reclaimed is often the most difficult area of VAT accounting for charities. The basic rules are :-
- Costs directly relating to earning, standard rate, reduced rate or zero rated income (the business income of the charity) – input VAT charged on these costs is fully reclaimable.
- Costs relating to earning exempt or outside the scope income –the input VAT incurred on these costs is not reclaimable
Of course, many costs do not fally completely into one category or the other and often a professional review of the costs and how to apportion them can improve the recovery of input VAT
If you are a trustee, director, member of the board or otherwise involved in a charity in the Peterborough area and would like advice or a review of your charity's VAT accounting please contact us.