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VAT: Charity overturns HMRC's deregistration rejection

A tribunal found that HMRC was wrong to refuse a charity’s request for deregistration since it was not making any taxable sales in its restaurant. Neil Warren considers the case. 
27th Apr 2021
Independent VAT Consultant
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To focus on the basic principles of our favourite tax, all income received by a VAT registered business or entity will fall into one of five categories.

It is important to know how each category operates in terms of output tax, input tax and VAT registration:

  • Standard rated: VAT is charged at 20%;
  • Reduced rated: Currently 5%, but a further reduced rate is being introduced on 1 October 2020 for the hospitality industry at 12.5%;
  • Zero-rated: VAT is still being charged on zero-rated sales but at a rate of 0%, so input tax can be claimed on related expenses;
  • Outside the scope of VAT: Neither a supply of goods nor services has taken place in the UK – the income is outside of the VAT system in most cases;
  • Exempt supplies: Applies to many goods or services, as listed in Sch 9, VATA1994 – a partial ‘win’ here as no VAT is charged on income but input tax is blocked on related expenses with partial exemption.

The recent first-tier tribunal case of Step-by-Step (Northern Ireland) Ltd (TC8038) had a foot in all five of these doors – I don’t think I have ever seen that before. I’ll comment on all five separately.

Trading background

Step-by-Step (SBS) was a registered charity that provided “A training environment for young people with learning difficulties to give them the qualifications, skills and experience to gain meaningful employment in the hospitality industry”.

The training was funded by grant payments from Southern Regional College (SRC) to the charity, with no fees charged to the students. As part of the training programme, the charity sold meals to members of the public through the One Eighty Restaurant facility on its premises.

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Replies (2)

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By Paul Crowley
27th Apr 2021 18:17

This does send simple people like me round in a circle as I would have said connected with education works. (but needed to wait for conclusion)
Fairly confident I read a case on an educational establishment recently.

I am suggesting to a local charity the other direction
Register. They operate as a charity, get and give grants, do projects (some funded) but mostly funded by the charity shop
Zero sales but standard rate building and other costs

Thanks (0)
By hfiddes
28th Apr 2021 11:11

It seems that the restaurant is no longer - funding issues and the pandemic given as reasons...

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