Do HMRC Consider you to be a Charity allowed to access relevant VAT reliefs – Are you sure?
Guest blogger Liz Maher of Centurion VAT questions charities access to VAT reliefs.
For many years there was no written definition of what, from the VAT perspective, constituted a Charity. Charities which were registered with the Charity Commission were straightforward in that regard – they were clearly a Charity for VAT purposes, but what about those bodies exempted from Commission registration – Industrial & Provident Societies for example or small charities?
Often, as a VAT specialist, I see charitable bodies which thought that VAT did not apply to them – that they shouldn’t be charged VAT on the supplies they buy in or don’t need to consider whether they should become VAT registered as they don’t feel that they are making supplies by way of business.
In part some of this is true: there are certain items that a charity can buy in and because it is a charity VAT should not be charged (but the charity will need to provide a certificate to the supplier to confirm that the supply can be zero rated to them). Also charity can still make a supply by way of business which may trigger a VAT registration – a cafe selling refreshments: supplies of staff: membership charges: consultancy services – all manner of supplies and the VAT treatment is often influenced again by the fact as to whether the body making the supply is regarded as a charity for VAT purposes.
So it’s key to keep up to speed with VAT management and to ensure that for the limited VAT reliefs that are available for a charitable body, that you can take advantage for the relief sure in the knowledge that HMRC do regard your organisation as a Charity from the VAT perspective.
So it is with some concern that I seem to be increasingly writing to HMRC at the moment to confirm that a particular client: which is not a Charity Commission registered charity but which for many years has held a Charity Tax Reference number: given to it in writing by HMRC: is “still” a charity and entitled to access the VAT reliefs available to them.
I was first alerted to the impact of this issue when dealing with a property development project for an Industrial and Provident Society when approaching HMRC for a zero rating ruling on a major property development. This was on the basis that they were a charity for VAT purposes and were going to use the property, when finished, for a relevant charitable (non business) use. The body wasn’t VAT registered, but had a Tax Reference number from HMRC issued in 2005, which we quoted in the correspondence, and had been using this number as evidence to suppliers to secure zero rating on purchases of advertising services amongst other things. It was a concern to read HMRC’s response therefore which stated that as they (HMRC) had no details of an active use by the body of the tax reference (the body made no Gift Aid Claims) they considered that the charitable status was dormant and that point effectively ended any discussion of whether the development qualified as zero rated as HMRC did not regarded them as a charity!
The justification for this view came from the new definition of a charity which was introduced in the Finance Act 2010 and for those charities who do not claim Gift Aid but utilise VAT reliefs came into effect from 1 April 2012. There is no dispute that there is now a clear definition of what HMRC will regard as a charity for the purposes of entitlement to VAT reliefs but what is a concern is that I’ve not yet seen anywhere in published guidance which stated that entities which have an existing tax reference number from HMRC need to re-apply! The new definition includes a test that the charity meets the “management condition” which is around the people involved with the charity’s finances being “fit and proper persons”.
HMRC guidance goes on to state that: “Charities should read the guidance on the fit and proper persons test if they have not already done so. In most cases charities will need to do nothing further because they will already have procedures in place to ensure that all personnel are fit and proper persons. Charities may wish to ask trustees and other managers of the charity to make a declaration that they are fit and proper persons but that is not mandatory.”
Canvassing contacts in both the accountancy and legal sectors it is clear that it’s not just from the VAT perspective that the application of this new definition is causing a concern. Submitting the new ChA1 form to secure this “new” confirmation of charitable status is taking over 12 weeks to be processed by the revenue I’ve been informed by one contact. It’s the lack of clarity on needing to apply at all that really causes me a concern.
Any charitable body relying on a Charity Tax Reference number issued before the 2012 change as a validation of their right to receive qualifying supplies of goods and services VAT free would be well advised to act to ensure they still qualify under the new definition even though it might take a while to get a response! Better that than issue VAT zero rating certificates which might leave you open to a later charge to VAT from suppliers or worse still plan major construction projects assuming zero rating reliefs are built into the budget and find your plans have to go on hold whilst you resolve your tax status with the revenue.
Centurion VAT Specialists Ltd was established in 1998 and is an Independent VAT advisory firm based in Newport, South Wales. They support businesses, the public and third sector across Wales and the South West. iz Maher is a Director of Centurion VAT and a specialist in Charities.
The views expressed in this blog are the views of Centurion VAT Specialists Ltd. Publication of this blog is not an endorsement by Wales Co-operative Centre and the Centre is not responsible for its accuracy and content.