Here at Bedrock we understand that with limited resources and funding increasingly hard to come by, it is more important than ever to ensure that costly tax mistakes don’t hinder the primary objectives of charitable organisations.
It’s a common misconception that charities aren’t subject to tax and more specifically don’t pay VAT – that couldn’t be further from the truth. In fact one of the most complicated areas of tax for not-for-profits is VAT as the rules are notoriously complex. As there are very few specific VAT reliefs for charities, it’s of paramount importance that organisations ensure that all of the available reliefs are exploited.
We have extensive experience dealing with organisations in receipt of grant income and how this affects their VAT position. We can advise on the treatment of business/non-business income and the corresponding VAT reporting requirements.
As an example, we recently worked with a charity where HMRC had issued an assessment for £600,000 – with our knowledge of the sector, strategic thinking and negotiation skills the assessment was withdrawn. We believe it’s important to always consider and challenge assessments as they can be raised by HMRC without a full understanding of the circumstances. Charities are often vulnerable as they have complex VAT issues and limited resources to challenge HMRC.
We can guide not-for-profit and charitable organisations through the process of:
- ensuring they maximise the use of specific zero-ratings available
- reviewing the group structure to make sure that VAT recovery is maximised – possibly introducing a trading company if appropriate
- ensuring business / non business activities are identified and treated correctly
- maximising VAT recovery using the most efficient partial exemption method
- challenging assessments raised by HMRC
Most charitable organisations can’t afford to employ an in-house tax specialist – however help is at hand. A small investment in professional advice can reduce the VAT burden and prevent penalties and interest. Even if penalties for uncorrected errors are successfully mitigated, the prospect of a lengthy VAT and PAYE investigation is an unwelcome drain on already stretched resources.