VAT for Charities

Guest blog by Ellen Main-Jeffrey, Just VAT

Back in February 2024, Ellen Main-Jeffrey from Just VAT attended Charity Chatter as a guest speaker. During the meeting, the group looked at VAT registration in some detail, as well as covering the rules when charities are required to register for VAT and the circumstances they might want to register voluntarily.

I wanted to share with you Ellen’s guest blog, which was published in our newsletter earlier this year.

In the early 2000’s a notable judge described VAT as a kind of “fiscal theme park”. Things haven’t really improved since then, but at Just VAT we try to simplify things as far as we can for our charity clients.

What counts as income for VAT registration

The rules governing when you need to register for VAT are not straight forward and the first step for any charity is understanding whether the income received is income generated by supplies made in the course of business for VAT purposes or non-business income which is outside the scope of VAT. It is important to note this distinction is different to the direct taxes’ distinction between charitable and non-charitable trading, therefore charities need to be familiar with the rules for both when deciding how to organise their activities.

You then need to establish the VAT liability of the various business income steams because VAT registration is based on taxable turnover. At Charity Chatter, we looked at the VAT treatment of typical charity income streams including non-business income such as donations and grants (when is a grant not a grant?), as well as the VAT liability of typical business income received by charities.

Timing

Timing is important. The 4 year time limit for adjustment does not apply to registration, allowing HMRC to backdate a registration to 1973!

There are two tests for compulsory VAT registration. Most charities will be familiar with the retrospective turnover test which requires the charity to apply for VAT registration if their taxable turnover is more than £85,000 in the 12 months then ending, but the forward looking test requiring immediate registration for VAT if you expect your turnover to go over £85,000 in the next 30 days is often overlooked. And finally, voluntary registration, not usually retrospective but the cost: benefit ratio of compliance costs versus VAT recovery should be regularly considered.

If you are currently grappling with a VAT problem, chat to Ellen at Just VAT.