Charities - VAT on Gas and Electricity

Haarlem

A reminder that registered charities that pay for energy to their premises should only be charged VAT at the domestic rate of 5%. This is a concession from HMRC. Charities should let their suppliers know if they are a registered charity and ensure they are charged at 5%. This is important if the charity is not regisered for VAT.

I prepare the accounts for charities, and every week I come across registered charities that are paying VAT at the standard rate applicable to commercial premises.

I have been to a Community Association this morning who contacted their supplier after my last visit and advised them that they are a charity. To the suppliers credit they have re-calculated their bills for the last 4 years at 5%, and they are now in credit for over £500.

JasonLVC

It's certainly a worthwhile moneysaving tip !.

The concession only applies to charitable non-business.

In more detail, a charity whose only income is say via outside the scope of VAT grants and donations is 'not in business' and thus non-business for VAT purposes and so the 5% concession applies.

It is unusual to find a charity that is truly 100% 'non-business' nowadays. Any income from online sales, shop sales, contracts with local authorities are all 'business' for VAT purposes.

The concession allows that where 60% of the charity is 'non-business', then the entire gas/electric can be supplied at 5% VAT, even the other 40% that relates to 'business' income.

Where the charity has say 50% non-business and 50% business then clearly the 60% threshold is not reached, but the concession still allows the charity to have the non-business element (in the example, 50%) to be reduced rated with the remaining 50% at the 15% rate.

This can also be done retrospectively so you can go back the last 3-4 years, depending upon whether you've changed supplier, whether you owe them money, etc as this is a matter between the charity and the utility supplier and nothing to do with HMRC at all.

Premier_2

Charities should only be paying the reduced rate of VAT for energy they purchase for qualifying purposes

Qualifying use means either:

• supplied for use in a dwelling or certain other types of residential accommodation, such as a children’s home, hospice or care home for elderly or disabled people
• supplied for use in charitable non-business activities, such as free day care for disabled people

In addition, deliveries of certain small quantities of fuel and power are automatically treated as being for a qualifying use. For example electricity supplied at a rate not exceeding 1,000 kilowatt hours a month,...

http://www.hmrc.gov.uk/CHARITIES/vat/purchases.htm#5

Wouldn't it be better for most charities to be VAT registered?
That way, anything they buy (including electricity & gas) used wholly & exclusively for buisiness purposes that attacts VAT could be recovered as input tax.

e.g. Sales of donated goods (but not services) are treated as zero rated
http://www.hmrc.gov.uk/CHARITIES/guidance-notes/annex4/sectionc.htm#24