Date05 Mar 2021
CategoryVAT & Indirect Tax, Tax, Corporate Tax, Employer Solutions, Private Client, R&D Tax Incentives, Corporate International Tax, Capital Allowances, Devolved Taxes
VAT represents a cost for the majority of Charities. The cost of administration, understanding the complex rules and recording and accounting for the tax itself can be significant. As most charities are unable to recover all of the VAT they incur on expenditure it represents an additional cost that quickly dilutes the income they work hard to generate from activities and fundraising campaigns.
Now that the UK is not part of the EU the UK Government is in a position to make changes and simplifications to the VAT rules that apply in the UK. We hoped that the Government would recognise the role and actions of the charity sector through the COVID crisis and it would introduce VAT measures that would improve the financial position of charities. While the extension of the 5% rate on hospitality and tourism could impact on some charities, the relief is only temporary and it isn’t really a direct benefit for the sector.
There have been discussions on a lower rate of VAT applying to charity purchases and a campaign for the VAT registration threshold to be increased. Both of these ideas would reduce the cost of VAT for charities and would be welcomed.
We also believe that the Government could extend the VAT recovery rules that apply to public bodies and local authorities to charities. This could allow charities to recover the VAT they incur on non-business activities and could increase the recovery of VAT incurred on other expenses that are subject to partial exemption rules. This could also help the Government and grant providing bodies to use the same value of funding pot for a greater number of projects.
It will be interesting to see what the Government decides to do in future - perhaps the time is right for the Charity sector to come together and with a single voice ask for changes that will help them to help the public and the Government itself.
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Have you been affected by the Budget?
If you have any queries regarding the Budget 2021 announcements and the impact they may have on you or your organisation, please get in touch with your usual Azets contact or a member of our Tax team.
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On 4 March 2021, our expert advisors explored the technical issues arising from the 2021 Budget and provided a practical assessment of the key announcements and their impact for both businesses and individuals. As ever with the Budget, the devil was in the detail. Our presenters also highlighted issues the Chancellor may not have made obvious in his address to Parliament.
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