New HMRC VAT compliance updates for charities

Value added tax (VAT) is a significant source of revenue for the UK Government. With the UK continuing to feel the effects of recent economic shocks, it is no surprise that HMRC is focused on securing as much VAT as legally possible. Charities and the not-for-profit sector are in the spotlight.

HMRC is increasingly passing the responsibility for VAT compliance back on to businesses, organisations, and their advisors. Those operating in the charity and not-for-profit sector often face the most complex VAT challenges.

HMRC VAT compliance updates for charities

HMRC has recently launched a campaign targeting smaller charities with turnovers of up to £2 million. These organisations are subject to output and input VAT implications related to:

• Whether funding is for a business supply (potentially subject to VAT) or for a grant (non-business activity)
• Recover the VAT incurred on costs that relate to business activities

Key areas for VAT compliance review

We recommend organisations act now and conduct a full review of their VAT accounting policies to reduce the risk of non-compliance and potential errors.

Undergoing an HMRC compliance check can be daunting. Common areas of review for charities and not-for-profit entities often include:

• Identification of the correct VAT treatment for supplies made
• Review of business and non-business income streams
• Review of input VAT recovery and partial exemption position
• VAT registration threshold
• VAT reliefs/exemptions for charities
• Trading subsidiaries of the charity
• Whether VAT exemption conditions are met
• Record keeping and VAT accounting policies

We are passionate about supporting our charity and not-for-profit clients. Our expert team has assisted many clients in evaluating the impact of VAT on their charitable operations. We want to support you with your VAT compliance but also identify opportunities to manage the impact of VAT on your organisation.

We offer a comprehensive charity VAT review which can be tailored to your organisation. You can get in touch here.