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Are membership fees VAT exempt?

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I work for the Scottish Community Safety Network and we are primarily a membership organisation that brings together representatives from across the community safety sector to achieve a shared vision.  We ask our members for a membership fee to help cover costs.  I am wondering if these are VAT exempt fees or if the VAT rate should be 0%.  I have been asked to investigate if we should register for VAT to make claims on purcahses but until I know the answer I cannot pass on the results of my research.  Can anybody help by answering my question?

Replies (10)

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By Les Howard
14th Apr 2021 17:49

The question is whether you qualify as a 'public interest' organisation as explained in this HMRC Notice:
If you do meet the criteria as a non-profit, and qualifying under one of the categories in para 12.2, then your membership subscriptions can be exempt. I wonder, from your description, whether you can be treated as a 'civic' organisation?
In not, they will be standard rated, not zero rated.

There is a separate question of whether you can apportion the subscription, for example, if it includes a zero-rated digital news periodical.

You may want to seek more formal written advice after receiving the wisdom of my AW colleagues.

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By The Dullard
14th Apr 2021 18:03

I think before you get on to Les's link, you should ask yourself the first fundamental question of VAT: "are you making any supply?"

Do you do anything for this "fee"? Do you have any Service Level Agreements with the members? Or is it in reality a mere contribution to your costs?

In the latter case, there is no supply and so there cannot be any VAT. It is outside the scope (because VAT is a tax on supplies), rather than exempt.

If you have decided that there is a supply, the next thing to do, before considering Les's link, is to consider the real nature of the supply. From what you describe, I doubt very much that they are membership subscriptions within Les's link.

Once you have determined the real nature of the supply, if any, you will be closer to determining the liability.

If the supply is of a membership subscription, from which the members obtain benefits, then by all means follow Les's link.

Also, is your organisation formed to fulfil any obligations arising under statute? If so, recovery of input VAT may be a more simple matter than for other organisations.

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By Paul Crowley
14th Apr 2021 18:02

I would be surprised if registration would give to any refund
If standard rated you will be paying VAT charged less VAT incurred. But still paying.
If Exempt then VAT incurred cannot be reclaimed

Assume income is less than £85,000 as otherwise someone should have taken advice immediately upon hitting the limit.
Annual limit rolls so check is 12 times a year
12 months to 31 Jan
12 months to 28 Feb

No restart at zero when you pass your year end

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Replying to Paul Crowley:
By The Dullard
14th Apr 2021 18:17

What if the "members" are able to recover any input VAT that they are charged by the organisation, so that they will accept VAT on their "membership fees"? What then? Does it change any part of your response?

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Replying to The Dullard:
By Paul Crowley
14th Apr 2021 18:55

Only if charity charges vat as an extra in addition to the current membership fees and the VAT incurred on its costs exceed the value lost when a number of members drop away at the thought of a 20% increase in fees.

But Op was looking for refunds, not charging members more money

Subscriptions and memberships £11,000 unresticted income
All other income is restricted donations

Thanks (2)
By Paul Crowley
14th Apr 2021 18:59

I may be confused but website link suggests audited accounts
Then link goes to accounts that are not audited?
Just an independent examination?

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Replying to Paul Crowley:
A Putey FACA
By Arthur Putey
15th Apr 2021 08:20

I don't think the OP makes any mention of them being a charity?
[Edit: Then Jason's post below appeared!]

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Replying to Arthur Putey:
Jason Croke
By Jason Croke
15th Apr 2021 08:32

Assuming we're looking at the same website, OP was kind enough to explain who they are, in the "about us" section it states they're a registered charity, so whilst there are still many nuances with VAT and we can't jump to definitive conclusions, it certainly makes things a lot easier once we know their legal and charitable status.

I'd be interested to understand what the donations & legacies are as that is a substantial amount of income, but if we're just looking at the question in hand, membership would appear, to me, to be exempt, because membership benefits are clearly described on the membership form and its mostly training/education and sharing best practice/knowledge which fits with their charitable objectives (according to the Scottish Charity Regulator).

One could argue there is a newsletter which could allow us to zero rate an element of the membership fee, but i) its available to non-members as well as members so effectively no cost benefit, ii) not clear if it is printed or just electronic and iii) even if we could zero rate it, is it worth the effort of registering for VAT to reclaim <5% of your input tax?

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Jason Croke
By Jason Croke
15th Apr 2021 08:33

As others have posted, what does the member get for their money?

I've visited your website, you're a registered charity/limited by guarantee and your main activities is training/education, forums, toolkits to assist other organisations, etc.

On that basic level, I'd venture your membership fee would meet the conditions of an eligible body and would be EXEMPT. Your main income seems to be donations and legacies which would generally be non-business/outside the scope of VAT, so on those two income streams alone, you appear not to be making any taxable (supplies subject to VAT) and so cannot register for VAT.

If you did have some taxable activity like selling safety equipment, they'd be taxable supplies and would permit VAT registration but you'd only be able to reclaim VAT to the extent of your taxable sales, so not worth the hassle imho.

It is common to confuse zero rate and exempt, they are very different animals, zero means you can register for VAT and reclaim input tax, exempt means you cannot register for VAT or reclaim input tax.

Zero rated in the context of a charity would be things like printed matter (paper newsletters), children's clothing, donated goods sold in a charity shop, etc.

Exempt in the context of a charity would be things like training, education, healthcare and welfare services, etc.

OP. If you want something definitive then contact Les (first person to post here), he is an experienced VAT expert in charities.

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By The Dullard
15th Apr 2021 10:23

Having also now looked at the website, the membership includes:
- local authorities (perhaps including Parish councils), the Scottish Police Authority and the Scottish Fire and Rescue Service, all of whom fall under s 33 and can so recover any input VAT, largely without limit,
- the Scottish Government, who can recover VAT on services, and
- National Rail, who I'm pretty sure would have no trouble recovering input VAT.

It seems to me that the route to VAT recovery by the charity is to be providing services to these entities, with specific deliverables, and then charge VAT on the fees for those services, which the entities can recover.

I agree though that where the principal benefits of membership comprise:
-welfare services provided by a charity or public body, or
- education/ vocational training by an eligible body,
then the membership fees will be exempt from VAT.

This is an area of VAT though that isn't really suitable for this forum, as few members have sufficient NGO experience to provide useful advice. The OP's organisation should consider taking paid for advice from a specialist in this field.

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