HM Revenue & Customs has published updated guidance on the VAT treatment of grants and contracts to clarify which services are eligible for VAT.
The Charity Tax Group said it has been engaging with HMRC on the replacement guidance and was pleased to see the inclusion of new case law updates and greater clarity about what services are eligible for VAT.
As part of the guidance, HMRC published a list of things that would indicate a service is eligible for VAT. These include:
- If the funder believes they are receiving something in return for a payment
- If the contract between supplier and funder is legally binding and connected to a business activity
- If the funder will attempt to control how the money is spent, maybe imposing specific targets in terms of quantity, quality, timeframes etc.
HMRC’s guidance says in summary: “The principal factor to consider is if a specific supply is made to the funder or a third party in return for a payment. If so then the payment is consideration for a supply, but if this direct link is not established then the payment can be treated as outside the scope of VAT.”
Reflecting on a draft version of the guidance, CTG said in a blog on its website: “Overall we feel it is an improvement, particularly the sections on indicators of the supply position and related factors to help determine whether the payment is consideration for a supply or not.
“CTG is now in the process of reviewing the final version of the guidance and will continue to engage with HMRC where some of our suggestions have not been progressed.”