Can my charity reclaim any VAT from HMRC?
Where a charity is registered for VAT and makes or intends to make taxable supplies, it can reclaim VAT on any costs incurred on expenditure which is wholly related to the taxable sales.
VAT on expenditure is called input tax. If a charity only has taxable income and no other income or activity, then it will be able to reclaim all the input VAT it incurs on costs, subject to having evidence (a VAT invoice) that it incurred the VAT.
Note that VAT on some costs such as business entertainment and the purchase of cars cannot be reclaimed.
What happens if my charity has non business activities?
Some charities are involved in non-business activity. VAT on expenditure which relates wholly to non-business activity cannot normally be reclaimed. However, there are also some special schemes which allow some charities to reclaim VAT on their non-business activity. These ‘refund schemes’ are described here.
What happens if my charity has exempt activities?
Some charities may have income which is exempt from VAT. VAT on expenditure which relates wholly to VAT exempt income cannot be reclaimed, though if the VAT falls below certain limits it may be regarded as being de minimis and become reclaimable. This is explained here.
What about my charity overhead costs?
Where a charity has expenditure which supports a mixture of taxable sales and non-business activity and/or VAT exempt sales a reasonable proportion of the input tax on these costs may be reclaimed. This is explained in more detail here. This would typically apply to the charity’s overhead costs.
HMRC guidance
HMRC guidance on reclaiming input tax can be found in section 10 of the HMRC VAT guide Notice 700.
HMRC guidance for their own staff can be found at VAT Input Tax
CTG does not provide tax advice and so the information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
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