VAT exemptions and non-profits: Introductionby
In the first of a series of practical VAT guides for charities, Les Howard highlights the different criteria that apply to exempt groups in six specific non-profit sectors.
You knew VAT is not a simple tax! Most AccountingWEB readers will be familiar with the concept of VAT exemption. What is less often appreciated is that several exemptions depend on the non-profit status of the supplier.
So, if you are trying to determine whether the exemption applies you have to look at the governing document such as a constitution or articles of association as well as the nature of the supplies being made.
For example, identical supplies of education may be exempt and taxable simply because they are made by different organisations.
To make it more complicated the different exempt groups use different definitions of eligible bodies.
There are six exempt groups that refer to “elegible body” and require specific wording, listed below with the relevant legislation and HMRC Notice that apply:
- Education (not private tuition) (Group 6, Note 1(e); PN 701/30)
- Welfare services (Group 7, Item 9; PN 701/2)
- Professional and membership organisations (Group 9, Item 1; PN 701/5, chapters 11 & 12).
- Sports activities (Group 10, Note 2A & 2B, PN 701/45)
- Fundraising events (Group 12, Item 1, Notes 2 & 3, PN 701/1, para 5.2.2)
- Cultural services (Group 13, Note 2, PN 701/47).
I came across one charity that was a membership body delivering supplies of sports and education. I therefore had to consider three sets of wording to ensure its different supplies were exempt.
In some sectors, it is advantageous for the supplier to make taxable supplies rather than exempt. If all your customers are corporates enjoying VAT recovery, or are part of local authorities with their own VAT recovery scheme, you could establish a corporate trading subsidiary, or alter the organisation’s constitution, to ensure the supplies fall outside the exemption. You can then claim input tax, which you would otherwise be unable to do.
This series of articles highlights some of the issues to look out for. Later articles will work through these groups, from the simpler to the more complex!
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Hi, I am a VAT Consultant, part of the team at vatadvice.org We are based in Cambridgeshire. We work largely with charities but also advise a range of commercial organisations.
I have over 30 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.