Irish VAT refund scheme for charities

The Irish Government has confirmed that there will be a new tax relief scheme made available to charities who want to apply for exemptions. While the fund, which is capped at €5 million a year, is modest it sets an important precedent by recognising the obstacles that VAT presents to charities. Further detail will follow. CTG has worked closely with Charities Institute Ireland through the ECCVAT network and shared information about how targeted VAT refund schemes have been secured in the UK.

A new Tax and Duty Manual (TDM) VAT Compensation Scheme Guidelines has been created and provides an overview of the scheme, including issues such as eligibility criteria, eligible tax and the application process.

The scheme took effect from 1 January 2018 but will be paid one year in arrears, so that in 2019, charities will be able to submit claims in respect of the VAT costs incurred in the calendar year 2018. A capped fund of €5 million will be available in 2019 to finance payments under the scheme. Claims can be submitted annually by charities who are registered with Revenue, hold a charitable tax exemption under Section 207 of the Taxes Consolidation Act 1997 and are registered with the Charities Regulatory Authority (CRA). Additionally, they must hold a Tax Clearance Certificate and be in possession of a set of audited accounts for a financial year which ends no earlier than in the calendar year to which the claim relates.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive. For example, where a charity’s gross income for 2018 involves 30% funding from State/EU/international organisations and 70% from privately sourced income, they can claim 70% of their VAT input costs for the year. Where the total amount of claims in a year exceeds the capped amount, charities will be paid on a pro rata basis, i.e. where the total value of claims is double the capped pool amount, each charity will receive 50% of their claim.

Update – August 2019

In August 2019, the Irish Government Revenue confirmed that over 1,100 claims, totalling almost €40m, were made by charities under the Charities VAT Compensation Scheme. Of these claims, 61% were received from charities supporting the community, 16% from religious charities, 15% from charities supporting education and 8% from charities involved in the relief of poverty.

The closing date for submission of 2018 claims has passed and the Irish Revenue is now undertaking a risk-based claims review process in respect of the scheme. This review process is ongoing and has identified some incorrect claims. The main error related to the inclusion of public funding in the amounts represented in the claim as qualifying income. However, the scheme only entitles charities to refunds of VAT paid having regard to their level of non-public funding. Where invalid amounts, or other errors, are identified, Revenue will contact the relevant charity to explain the reason why the overall claim will be reduced and the elements of the claim amount that do not qualify.

As the value of the VAT claims submitted by charities in respect of 2018 exceeds the annual fund cap and any refunds due will be paid to charities on a pro-rata basis. This means that if all the claims submitted totalling almost €40m are fully valid, having regard to the fund cap of €5m, each charity would receive approximately an eighth of their claim back by way of a VAT refund. Allowing for the completion of the claims review process, Revenue expect to make refunds to qualifying claimants on a pro-rata basis during October and November.”

In its latest Budget submission, Charities Institute Ireland has called for the €5m annual fund cap to be increased to €20m.