While charities in Ireland can qualify for a broad range of tax exemptions, they have no general exemption from VAT. This means that a charity is usually not able to reclaim the VAT it is charged which in turn reduces the funds available to it to carry out its charitable activities.
In an effort to address this problem the VAT Compensation Scheme (the "Scheme") was announced back in October 2017 as part of Budget 2018. It followed a lengthy consultation involving the Revenue Commissioners, the Charities Institute Ireland and the Department of Finance. In December 2018 the Revenue Commissioners published information and guidance for charitable bodies in respect of the operation of the Scheme.
In this note we look at some of the main issues which a charitable organisation looking to avail of the Scheme will need to consider.
Who Can Make a Claim?
To be eligible to make a claim under the Scheme a charity must be on the register of charitable organisations, which is maintained by the Charities Regulatory Authority, and have a CHY number, which are issued by the Revenue Commissioners, both at the date of the claim and at the time the expenditure was incurred.
The charity must also have incurred VAT on "qualifying expenditure" in the relevant year.
When can a Claim be made?
Claims are confined to a single calendar year and can only be made after the end of that year. A claim for 2018 can only therefore be made in 2019 and it must be made no later than 30 June in that year.
Also, the Scheme operates on a cash basis so only VAT paid in the year in question can be included in a claim. So goods or services invoiced in 2019 but not paid for until 2020 must be included in the claim for 2020. The Scheme is scheduled to last for 3 years.
The total annual amount available to pay out on foot of the Scheme is capped at €5 million euro. The pay-out calculation, we are told, will take place just once annually and due to various factors involved in the repayment process, we are advised that it will not be possible to recalculate the payments or accept late applications.
If the total value of eligible claims exceeds the €5 million euro cap then the payments will be administered on a pro rata basis.
Calculating the Claim
To be able to make a claim under the Scheme a charity must have paid VAT on goods or services which were used by the charity only for its charitable purpose (i.e. qualifying expenditure).
If the charity has privately funded income only (i.e. public donations) then it can make a claim in respect of all of the VAT it has paid in the year in question. If the charity has any State funding then a claim can only be made in respect of the qualifying expenditure based on the proportion of privately funded income to publicly funded income.
So, for example, a charity which has total income of €40,000 in a year, broken down between public donations of €35,000 and a State grant of €5,000 can look to make a claim under the Scheme in respect of 87.5% (€35,000 / €40,000) of its VAT.
There is a detailed list as to what constitutes public funding and this should be carefully considered by a charity when determining what % if it's qualifying expenditure it can make a claim under the Scheme in relation to.
How to Make a Claim
Charities looking to make a claim must:
- hold a current tax clearance certificate
- retain VAT records that form the basis for the claim e.g. invoices, receipts etc. for 6 years and may be sought by Revenue at any time
- have evidence that the goods and services on which they are claiming VAT were applied to their charitable purpose
- satisfy Revenue that the VAT for which they are seeking a refund was paid in the year to which the claim relates
- have evidence that the income on which their calculation is based was received by the charity in the year to which the claim relates
- provide if requested by Revenue to do so, their most recent set of audited accounts. These accounts must be for the charity's financial year and the year end of the financial year must be the year to which the claim relates or the year in which the claim is being made
- show if requested by Revenue to do so, that they were not entitled to a deduction or refund of the tax being claimed under any legislation administered by Revenue.
How to submit a claim
Claims for VAT compensation must be submitted through Revenue's Online System (ROS) with repayments being made through Revenue's e-Repayments system.
The following also apply:
- Claims and any supporting documentation must be submitted in the format required, and in accordance with the deadlines specified by Revenue.
- Claims can be submitted between January 1st and June 30th in the year following the year to which the claim relates.
- Claims can be submitted annually for one calendar year only and should relate to VAT paid in the previous year only.
- Claims may be amended up to 30th June of the year of claim submission but not afterwards.
- The minimum amount that can be claimed is €500 and the minimum repayment, in line with existing VAT legislation, is €5.
- Claimants must declare and certify that all information they provide for the purposes of the claim is correct. This written declaration must be provided by the CEO or CFO of the claimant charity and should be completed on the charity's headed note paper.
When is Payment Made
Where the total amount of claims in each year exceeds the capped annual amount of €5 million euro, any refunds due will be paid to charities on a pro rata basis. Revenue is not obliged to refund the full amount or any amount claimed
Any refunds due to charities will be paid through Revenue's e-Repayments system. It is expected that payment will be made no later than November of the year of submission of the claim.
The roll out of the Scheme is to be welcomed. It is hoped that it will work better for charities than the changes to the tax relief for charitable donations which don't seem to have benefitted the not for profit sector.
A charity interested in participating in the scheme only has a relatively short window (i.e. 30 June this year) within which to quantify the amount of their claim for 2018 and make their submission while ensuring that it has all of the back-up information required should Revenue seek to review it. Charities with proper financial reporting systems in place will be best equipped to extract all of the prior year information needed to work out the value of the claim in the time period prescribed.
It will be interesting to see how much of the €5 million euro allocation is paid out at the end of this year and how much will be left for 2019 and 2020!
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.