Charity preschool and VAT

JasonLVC

Cardinal-Red wrote: »

Secondly I asked about LA grants specifically in regard to the council supporting charities rather than paying for the childcare. Some councils are prepared to purchase goods and services on behalf of their VAT sensitive recipients and gift them away... input tax recovery for the LA and lower costs for the charity.

All valid suggestions Cardinal....and nice to have a fellow VATbod on the boards.

There have been several changes over the years and councils still do what you suggest but the problem is that s.33 applies only where the Council spends its own funds on statutory activities or donated funds but which it retains ownership of.

So if the Council wants to pay for a charities rent, building extension or stamps/envelopes thats fine, but it has to come out of the Councils own funding. Where the charity "gives" the money to the council first who then spends it, then this fails the conditions for s.33 but, as you say, it still goes on today. Also, charities need to be carfeful about breachiong Charity Commission guidance in terms of 'giving away' donated funds to someone else (LA), especially if it involves assets where the ownership must belong with the charity.

Bus. Brief 53/09 refers to Vol. Aided schools but the law behind it remains the same in terms of abuse of s.33. Similar restrictions apply relating to village halls and similar (V1-V14 "Government & Public Bodies", para 5.8).

Cardinal-Red

Absolutely agree - sorry I didn't mean to suggest that the pre-school would give the Council money who would then buy things. As you say, this wouldn't work.

I was talking about a scenario where the Council acts as a provider of grants to local charities etc, out of its own funds. The usual method is Council says here you go charity, here is £1,000 - go and do stuff. People like the OP get the £1,000 and spend it on their charitable activities.

But instead of this, what is happening more now is the Council is saying - we would give you a grant of £1,000 - what would you like to spend it on? The Council then procures the goods (or services) itself, and gifts them away - taking advantage of its s33 status. Therefore one of two things happen - either the charity gets goods it would have spent the £1000 on, but the Council only spends around £800 (Council benefits from the scheme) ; or, charity gets goods worth £1,200, and the Council has still only spent the £1,000 it originally intended to.

Either way the VAT cost is washed out to somebody's benefit.

This is perhaps drifting away from the OP's original point but when did that ever stop a VAT practitioner!

JasonLVC

Cardinal-Red wrote: »

This is perhaps drifting away from the OP's original point but when did that ever stop a VAT practitioner!

Its not too off-topic, all valuable advice for the OP or someone looking for a similar arragement.

Yeah, what you suggest works fine and as you state, can be a real benefit to a cash strapped charity, I mis-understood your original post, sorry about that.

parry

I am in the same position as the person who posed the original question, having just agreed to become treasurer of my son's pre-school.

I'd already read the HMRC guidance on VAT in this sector and thought all was lost with regards to claiming back VAT. Glad to hear we may still be able to save some money if our operation becomes a bit smarter!

Thanks for the valuable advice

mysk_girl

And I've just agreed to become Chair of our preschool and was looking into the same question, but mostly because our turnover is £85k last year and I was worried in case we should have registered for VAT - apparently we're OK, which is a relief! I want to expand to provide a breakfast club for the associated primary school as there is nothing available in the area, which obviously means our turnover is going to increase again...

Anyone have any other advice on running a preschool? I've just about figured out payroll and HMRC software (we have 8 staff and monthly payroll ca £4500), any other tips welcome!