The Charity Tax Group (CTG) worked with member charities and universities to identify areas of uncertainty in HMRC guidance in respect of the VAT treatment of humanitarian and associated funding (including UK Department for International Development (DfID) funding and UK Global Challenges Research Funding (GCRF)).
This resulted in written correspondence between CTG and HMRC between February and June 2020. The format of the correspondence is HMRC providing answers to questions posed by CTG. HMRC officials have indicated that guidance may be updated in due course, but have agreed that the full correspondence can be published in the interim.
The headline findings are summarised below. However, CTG cannot comment on specific funding arrangements and charities should always seek professional advice where appropriate and read the correspondence in full.
CTG Management Committee Member, Andrew Disley, who led the project, commented:
“CTG is very grateful to HMRC for the additional guidance that has been provided on the VAT status of humanitarian aid funding received from governmental and intergovernmental organisations and more generally on Back to Back grant funding arrangements. The guidance has provided very helpful clarification in this area. This guidance will be of assistance to members to identify areas where additional VAT recovery may be possible and also identify transactions to which the reverse charge procedure does not apply.”
Government etc funding
UK Overseas Aid Programme
All grant funding received from a UK government department in order to fund the carrying out of the UK’s overseas aid programme is a non-business activity and therefore outside the scope of UK VAT. No charging of VAT and no recovery of input VAT.
This covers both DfID funding but also other grants eg GCRF. It is not necessary to consider the general form guidance in VATSC16300 etc. This covers both amounts receivable under Accountable Grant Arrangements (AGAs) and amounts receivable under service contracts.
DfID special arrangement
There are a number of tripartite arrangements under which DfID make payments to UK charities etc on behalf of overseas governments. See VATGPB9500. The underlying service agreement is with the overseas government but DfID agrees to settle the bill. This is described as a “special arrangement”. Where there is a supply no VAT is chargeable by the charity because the supply is overseas ie an export but input VAT can be reclaimed (ie good news). DfID and HMRC have agreed that it is only the former department that can determine if supplies are being made in relation to these specific circumstances, and they will notify a contractor of the situation and the VAT treatment required.
Other non UK governments and intergovernmental organisations
The normal guidance on grants applies. If, for example, a charity received an Irish Aid grant income to fund a Covid-19 relief programme in Yemen under a pay by results service contract, which was agreed to give rise to a supply, then the charity would not need to charge any VAT because this is an outside the scope supply (ie export) but input VAT is recoverable.
Back to Back Arrangements
Suppliers in Back to Back Arrangements
HMRC guidance is not prescriptive about who the supplier should be and is not limited to, for example, universities or overseas aid charities. If the circumstances mirror those set out in paragraph 6 of VAT Information Sheet 11/13, where a contract involves grant funding flowing through one body to others, and the arrangements are genuinely non-business, then HMRC accepts that all the services provided by each of the collaborating bodies are outside the scope of VAT.
Subsequent identification and contracting with collaborative partner
HMRC has confirmed that it is not necessary to have identified the collaborative partner when the main grant is entered into for the back to back relief to apply. If the arrangements are genuinely non-business activities, and the grant funding flows through a lead body to the others involved in the contract, then knowing the identities of the collaborators is not necessary at the time of the application. HMRC state:
For example, a Government department funds some research for the common good. It funds body “A”, but other bodies are also involved. “A” holds the funds and at the start of the research project it is known that bodies “B” and “C” will be involved. Subsequently, some of the research is also undertaken by “D”. The collaborative research principle applies to “D” as much as it applies to “A”, “B” and “C”.
Reverse charge on payments of GCRF funding to overseas partners delivering the UK international aid program on the ground
Funding transferred from the recipients of GCRF, such as universities, to overseas partners is generally outside the scope. On this basis, there is no supply by the entity undertaking the work, or procuring the work, and therefore the funding is outside the scope of UK VAT, it therefore follows that no reverse charge would apply.