VAT for 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 Dufton Kellner in Wirral are able to advise on the best way to do this.
Charities running a business activity must register for VAT if income from that activity reaches the VAT registration limit - as with any other kind of business. Only business income applies here - any non-business income (such as donations) is not included when calculating income for registration.
For VAT registered charities, working out what input VAT can be reclaimed is commonly the most difficult area of VAT accounting for charities. In basic terms, the rules are:
- Costs relating to earning exempt or outside the scope income -the input VAT incurred on these costs is not reclaimable
- 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
In reality many costs do not fall neatly into one of the categories. A professional review of the costs and how to apportion them can very often improve the recovery of input VAT.
Contact us if you are a trustee, director or member of the board of a charity in the Wirral area and would like assistance with your charity's VAT accounting.