Charity gets VAT back from HMRC

Charity gets VAT back from HMRC. Charitable housing provider will receive additional refunds in excess of £30,000 a year.  Revell Ward’s VAT specialist explains how.

VAT is a huge headache for many charities. The VAT rules are complex and change frequently. Charities pay VAT on most of their purchases yet many of them are only able to reclaim a small percentage of the VAT they incur on costs.

Sometimes, charities take the view that trying to reclaim VAT is more trouble than it’s worth – but as this article shows, that may not always be a wise assumption!

Rhona Graham, Revell Ward’s specialist VAT consultant is currently working with a charitable housing provider to help them recover additional VAT on their general running costs.

The charity receives income from a variety of sources. Some of its activities entitle it to reclaim VAT on related costs, others do not.

For the past four years, the charity has only reclaimed VAT on costs which relate directly to its taxable activities. However, the VAT rules also allow for a proportion of VAT paid on overhead costs to be reclaimed. In this case, the charity was able to demonstrate that around 10% of the VAT on its general running costs was used in carrying out its taxable activities and could be reclaimed.

This translates to a retrospective VAT repayment in the region of £100,000 – plus additional VAT refunds of over £30,000 per year on an ongoing basis. The charity can now reinvest these additional sums in its core activity of providing housing for those in need.

Revell Ward’s top VAT tips for charities:

• Review VAT processes and procedures on a regular basis (or why not book a free initial VAT healthcheck with us?)
• Consider VAT impact of any changes in structure and/or new areas of activity
• If in doubt, seek advice – the sooner you are able to resolve problem areas or identify savings opportunities the better.

If you are would like a free VAT health check, please click here.