We have recently come across a number of VAT issues affecting sales of goods made by charities – whether through charity shops, online, or via charity auctions.
Key issues to be aware of include:
Here, there is good news. The legislation provides for the sale of donated goods by a charity (and in most cases a trading subsidiary) to be zero-rated. This means such sales can be made VAT-free, but costs associated with running the charity shop are eligible for reclaim.
Be careful, though: zero-rating only applies to donated goods. Goods you buy in for resale will take their normal VAT liability. Unless you are selling items like children’s clothes or books, these sales are likely to be standard rated (20% VAT).
This can be a tricky area. The ‘default’ position is that VAT is due on goods sold at auction based on the normal VAT liability of the item in question and valued in accordance with the ‘hammer price’.
However, the zero-rate can still apply if the goods were donated for sale. Also, if the auction is held as part of a qualifying fund-raising event, the income may be exempt.
We have noticed recently that a number of small business entities and charities are expanding the range and scope of goods they sell online.
Again, there are potential pitfalls here.
As well as making sure you stay within the usual UK VAT rules, you will need to bear in mind the possibility that overseas registration might be required if you make sales to private customers elsewhere in the EU. The registration limits for these so-called “distance sales” can be as low as EUR35,000 per country per year. So it’s important to monitor turnover levels from these sales.