UK: UHY Insights: VAT For Charities

Last Updated: 4 September 2015
Article by Simon Newark

The issues we highlight may make you want to review your own VAT position.

Attendees at our recent VAT event, aimed specifically at the charity sector, were surprised to hear that the not-for-profit sector is actually a significant contributor of VAT revenue to the Treasury, particularly given the amount of revenue involved.

The event, hosted in UHY Hacker Young's London office, was a meeting of the Charity Special Interest Group of STEP, the Society of Trust and Estate Practitioners, and given this response to the level of Government VAT revenue, VAT was clearly a good choice of topic to be covering. The session was led by our specialist VAT partner, Simon Newark, who presented a wide-ranging insight into several VAT areas that affect the charity sector highlighting hidden dangers, easily missed opportunities and HMRC's approach.

Given the niche topic, the audience lent itself to a more interactive session and rather than a traditional lecture-style presentation, there was much lively discussion as some relatively unknown facts and current 'hot off the press' VAT issues were considered. What can be clearly noted from the session was not only a recognition that many VAT issues are either overlooked or not recognised for their implications for the charity sector, but also that for many not-for-profit bodies, VAT can indeed work to your advantage once you have grasped how it works and have dealt with the inevitable administration.

Feedback during drinks after the meeting suggested that many of those attending would be reviewing their client files or even just raising the question of VAT to explore the implications, or even potential benefits, from some of the points covered.


Given this feedback, we highlight below some of the most debated issues of the evening which, in some cases, were previously unknown but are of importance to the not-for-profit sector.

Are the activities seen to be 'in the course of business'?

Whether activities are in the course of business for VAT purposes or non-business in nature is a fundamental point not to be overlooked. This can be a difficult area however, as the definition of 'business' (or 'economic activity' in European VAT) is quite different in relation to VAT. An organisation engaged in non-business activities is not able to reclaim VAT incurred on associated costs but, conversely, such activities can allow certain purchases to be free of VAT. When you realise that the financial implication of this one simple question could range from hugely advantageous to utterly disastrous, depending on the circumstances, it is something that we would advise all our not-for-profit clients to review on a regular basis with our VAT specialists. During the session, Simon revealed that the key case on this subject had just been appealed by HMRC to the Court of Appeal, with the hope of finally resolving the question of what is a 'non-business activity' and does a purposive (or 'commercial motive') test have any relevance to VAT?

If the Court sees it as necessary to seek guidance from the European Court this could still take time to be resolved, particularly if the eventual decision is not in HMRC's favour and they appeal to the UK Supreme Court – which they are expected to do in this situation.

Grant-funded or business activity?

An offshoot of the non-business question affects organisations funded by grants, often from elsewhere in the public sector or from local authorities. The distinction between a 'grant-funded activity' or a 'business activity carried on under a Service Contract' has been explored by the Courts in many disputes with HMRC. The VAT consequences can be profound and if the case goes in favour of HMRC, the VAT cost can easily wipe out an entire budget. The clear benefits of seeking early advice to structure your VAT arrangements appropriately should be recognised.

Calculating how much VAT you can reclaim

This is an issue that can often be quite complicated and time-consuming, but is one the not-for-profit sector cannot avoid. This administrative burden can be eased to some extent by ensuring your organisation is structured in the most efficient way from start-up, or by streamlining the process already in place. A simple step that can go a long way in helping you deal with your VAT obligations. Our VAT specialists have vast experience in this area and can help you find the most suitable process for your organisation.

Land and property

Costs can be high where land and property are concerned. In certain circumstances, as a charity, you can prevent a landlord from charging VAT on rent or even have a property constructed completely free of VAT. Again, the key to this is to ensure you structure your plans in the right way from the outset, particularly when it comes to seeking planning permission where local authority planning language can conflict itself with VAT requirements if not addressed early in the process.


As mentioned earlier, feedback from our event suggested many of those attending would be reviewing client files or raising questions. Should you now wish to review your own VAT position, or have questions specifically related to VAT, please contact the speaker and our specialist VAT partner.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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