Charity VAT Survey

16th March 2006

Deloitte has recently published a summary of findings from a charity VAT survey it conducted in association with Charity Finance Directors' Group and the Charity Tax Reform Group.

The purpose of the survey was principally to examine the administrative and cost impact of VAT on charities, and the extent to which charities are able to proactively manage VAT.

VAT has been a major source of financial cost and a resource burden to the charity sector. The VAT system is inappropriate to the core activities of a charity. Most of the services provided by charities are either exempt (ie they cannot charge VAT and so cannot recover the VAT that they pay on their purchases) or they are non-business supplies (because the charity does not charge for the service or heavily subsidises it) and are outside the scope of VAT. In either case, the charity ends up with a substantial irrecoverable VAT bill.

There are three key themes emerging from the survey findings. Firstly, the internal resource available to actively manage the VAT position is very limited. This means that although charities understand the importance of compliance it is rare for them to achieve anything other than a basic level of compliance due to resource constraints.

Secondly, the burden of irrecoverable VAT weighs more heavily on smaller charities. This is hardly surprising when you consider that they have less resource available to devote to maximising their VAT recovery. This suggests that there may be a direct link between level of resource available to deal with VAT issues and the VAT cost.

Thirdly, the effectiveness of VAT accounting systems is of key importance to charities to ensure effective VAT management and compliance returns. The survey suggests that there is more charities can do to make their arrangements more VAT-efficient.

You can download your own copy of the Deloitte Summary of Findings in the Charity VAT survey.

If you are concerned about irrecoverable VAT and wish to write to your MP to highlight this issue please download our template letter.

If you would like further information on irrecoverable VAT please visit the CTRG website which has further information.

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