I’ve recently added a new section to the website which contains a summary of the main VAT rules relating to charities and links to the HMRC notices which contain more detailed information (see the link on the menu). As you’ll see, it’s a big topic. In fact, the subject of VAT and charities is probably one of the most complex and difficult to deal with. I get a lot of queries about various charity related issues and no two of them are ever the same.
Many small to medium sized accounting firms have partners or staff who are very experienced at dealing with charities, but still rarely have indepth knowledge or experience of VAT. Just recently I’ve dealt with a situation where a relatively small charity has been faced with a VAT bill of up to £60k on construction that could have been avoided – quite correctly – if some relatively small changes were made to the design.
And I’m not saying this to criticize accountants. Far from it. I know how much accountants have to do for their clients, but even an experienced accountant with several charity clients can only ever have limited knowledge of the charity VAT rules. There are a couple of very detailed text books on the subject and even experienced VAT consultants (including yours truly) have to double check the legislation every time we give a client advice on the subject.
VAT and Charities: information
I started compiling the new section for the website back in January. Knowing how much information is available on the HMRC website (and there is A LOT of it), I thought it would be useful to do a short list of the main VAT and charity reliefs and where to find detailed information about them on the HMRC website. I’d planned a couple of pages, but even just to list the main reliefs got up to 4 or 5 pages. By the time I’d added a bit of general information and the relevant links to the HMRC notices, despite my best efforts to keep it brief and relevant and readable, the “short article” had doubled in length. It also took about 3 months to finish as, like all of the stuff I do for the website, it has to be fitted in between client work.
The point about all of this is just to emphasize the complexity of the VAT rules for charities and how difficult it is to know them all. The large, international charities invest tens, if not hundreds, of thousands of pounds in professional VAT advice from the big accountancy firms every year to ensure that they are making the most of the VAT reliefs that are available. It’s a big business area for the VAT consultants concerned and the charities save significant amounts of VAT by investing in the advice.
Smaller charities don’t have the luxury of putting up prices or getting bank loans (for the most part) to cover unexpected and unnecessary tax bills. In an effort to prioritise and use funds for their charitable purposes, small and medium sized charities often ignore VAT issues until it’s too late to take advantage of the reliefs.
This is one really important area where bringing a VAT consultant in early can add real value for the charity and is worth the investment.
And I can tell you this. There isn’t a VAT consultant in the country who wouldn’t be happy to have an initial no-obligation meeting or discuss to discuss VAT issues with a charity. It’s one of those areas where we can nearly always reduce the client’s VAT costs while at the same time generating a decent fee.
But you have to bring us in up front, at the planning stage and before any contracts are signed so that we can really give the best value.
I hope you find the new section useful – please feel free to contact me if you have any suggestions or need any help on charity VAT issues.
Marie
11 May 2011