Palliative Care – VAT Recovery

On 1st April 2015 the VAT recovery rules changed for certain charities. These are:

  • Palliative care charities
  • Air ambulance charities
  • Search and rescue charities
  • Medical courier charities

The rules changed only for those charities where their primary function is one mentioned above. Any other charity not mentioned is not affected by the change.

Prior to 1st of April, a charity could only recover VAT when incurred as a result of making taxable supplies; this is the case with most entities. This meant the only VAT they could recover was that which was incurred in running a business, such as a charity shop or commercial property rental. Charities could not recover VAT incurred on their ‘non-business activities’ or ‘exempt from VAT’ activities such as fund raising.

From the 1st of April however, the above mentioned charities are able to claim for refunds of VAT incurred on goods and services which relate to their non-business activities. This represents a significant change in both cash available for a charity and administrative work.

Charities that are already registered for VAT should claim an input VAT refund in Box 4 of their VAT Return. In that box, a charity should include not only the value of the input tax they incurred in making their taxable business supplies, but also the amount of VAT they are reclaiming under the new rules for non-business activities. As with any VAT return, the net purchase figure should be included in Box 7.

For those charities not VAT registered, an online form and separate spread sheet must be completed and submitted to HMRC with a list of purchase the charity wishes to reclaim VAT on. HMRC will then arrange a subsequent payment.

One of the key challenges that the change has kicked up, is how to apportion mixed use costs for VAT recovery between ‘business’ and ‘non-business’. Ideally you should be looking to push as much cost through the ‘non business’ part of the charity, because the VAT incurred is fully recoverable. Often this is done with a simple income based apportionment, but there are many other non financial ways to apportion costs, such as area based, or time sheet based. This is entirely dependent on the charity’s individual circumstances, if you would like to discuss your VAT position Garbutt + Elliott’s VAT team can provide a review and help to obtain HMRC approval of any special methods.

 

For more information, please contact Nick Boaz or enquiry@garbutt-elliott.co.uk – 01904 464 100