Charities are penalised under the current VAT system, decided in Europe, because they can’t charge VAT on the services they provide for free, and so cannot recover the VAT on their expenditure.
The European Commission has long acknowledged that the VAT system treats charities unfairly and has said the best solution is for the UK government to give charities a grant to cover the irrecoverable VAT that they pay. But the UK government has refused both on grounds of principle and cost.
What is particularly unfair is that a charity can spend a much greater percentage of its turnover on VAT than the commercial organisations with which it competes for public service contracts. In some cases, the percentage can be as high as 15 per cent and is usually well in excess of 10 per cent of the charity’s voluntary income.
There are extensive reliefs for certain charitable activities that are affected by exempting them from VAT. However, these social reliefs apply to the outputs of charities and do not deal with the main problem of the cost to charities of irrecoverable VAT incurred when providing these services, effectively making the charities significantly worse off.
In late 2009 the EC is due to launch a major consultation on the legislation covering VAT - the Principle VAT Directive - at which the UK’s Charity Tax Group plans to highlight the unfairness of the existing law.
HMRC creates property taskforce
HMRC is targeting VAT evasion on properties. Colin Laidlaw explains its intentions.
An independent investigation into alleged financial irregularities at Charity Business has revealed that the company raised no fixed-fee invoices for the period May to September 2011 until October, meaning it failed to declare around £50,000 of output VAT in the correct VAT period.
Cost-sharing exemption
The draft 2012 Finance Act's impact on cost-sharing groups is confirmed. Colin Laidlaw outlines some of HMRC's other plans for the Act.
Chris Lane analyses what impact the European Commission's consultation on the future of VAT may have on charities.
An apparently innocuous announcement late last week from the European Commission may lead to yet more VAT problems for charities planning to establish cost-sharing groups (CSGs).
The meaning of 'donation' for VAT purposes
When is a donation not a gift? When HMRC gets involved. Graham Elliott reports.
HMRC's new dispute resolution service would instil more confidence if the facilitators were independent, says Socrates Socratous.
The government should look again at reducing VAT on investment management fees for charities, says Diane Wilde.
HMRC is piloting a new method of resolving VAT and direct tax disputes with small and medium-sized enterprises, including charities, to try to settle conflicts before they reach a tribunal.
Charity Tax Group has welcomed new recognition by the European Commission of the VAT burden on charities, but is disappointed that no new solutions have been proposed.
The Treasury estimates that the VAT cost-sharing exemption will cost the Exchequer £125m by 2016/17, and anticipates that efficiencies achieved by the sharing of services could save the sector a further £100m.
How to get the most out of salary sacrifice
Ellie Gamble and Debbie Jennings explain how employers can use a salary sacrifice scheme to benefit both the employee and the employer.
Accountancy firm PKF has warned that a comment from the government yesterday in a guidance note regarding the cost-sharing VAT exemption may leave room for the Treasury to water down the proposals in the original consultation document.
The government has confirmed it will introduce the long-awaited VAT exemption for civil society organisations that wish to share back-office services.
The House of Lords has voted for an amendment to the Health and Social Care Bill requiring government to report to Parliament on the VAT treatment of supplies used by charities providing healthcare services on behalf of the NHS.
VAT reclaims for CIFs?
Debbie Jennings discusses a case that has been referred to the European Court of Justice which could result in VAT savings for common investment funds.
Four of the sector’s biggest umbrella bodies have clubbed together to tell HMRC that the proposed VAT cost-sharing exemption will be of no use to charities if implemented as it stands.
An HMRC official has dashed hopes that the sector may be able to make big savings as a result of the proposed VAT exemption on shared back-office services, in a speech to charity finance directors this week.
HMRC has refused to budge on its insistence that charities must pay VAT on the wages of temporary staff, confirming the likelihood of a test case being brought on the issue.
The Direct Marketing Association has set up a new advice service to help charity marketers understand the VAT concessions available to them.
HMRC has withdrawn proposals to charge VAT on design and build composite changes, a change which the Charity Tax Group claims would have cost some charities hundreds of thousands of pounds.
The Charity Tax Group is hoping to hear this month whether HMRC has changed its mind about proposed changes to VAT rules on building work which experts have warned could be “very costly” to the sector.
After a long delay HMRC has finally issued its consultation on how the cost sharing exemption, that is permitted under Article 132(1)(f) of the EU VAT Directive, could be introduced into UK legislation. Colin Laidlaw explains.
VAT reform - don't hold your breath
John Hemming reviews the chances of a fairer European VAT system for charities.
VAT on charitable buildings
HMRC has recently issued extensive guidance on how changing the use of charitable and residential property can affect eligibility for zero-rating or entitlement to VAT recovery. Richard Wild explains.
HMRC has issued its long-awaited consultation on the European VAT cost sharing exemption, moving a step closer to tackling the tax disincentive towards charities sharing back office functions.
HMRC proposes to amend its policy on design and build structures
Socrates Socratous outlines new HMRC proposals for VAT on building work which could be costly for charities.
VAT on temporary staff
Colin Laidlaw details the result of Reed Employment's recent VAT challenge, which has ramifications for charities employing temporary staff.
Longstanding Charity Finance contributor Graham Elliott has won the award for Tax Writer of the Year at the Taxation Awards.
Is a skate park a building?
Whether your charity's new buildings have walls, or bridges, can affect the VAT status of the construction. Graham Elliott explains.
