Charities suffer VAT at the rate of 20% on their purchases, which is a direct cost if their activities do not constitute the making of taxable business supplies. Many charities fall into this category and have lobbied the government for rebates of the irrecoverable VAT they have been charged to increase their capacity to provide the worthwhile causes they support.
The government has announced that HMRC will refund VAT to search–and-rescue, air ambulance and hospice charities.
For the first two, the changes will take effect from April 2015. Legislation is expected in the Finance Bill 2015. For hospice charities, the changes will not take effect until the Fair Playing Field Review has been completed.
Those charities which qualify for the new reforms will be better off as HMRC will be required to refund VAT on their costs.
This development follows recent similar moves by the government for certain charities, viz:
- On 19 March 2014, the government already announced assistance for the VAT incurred by air ambulance charities on their fuel costs.
- On 6 November 2014, the Chancellor announced that the government would refund VAT to the Tower of London’s spectacular display of WW1 remembrance poppies.
- On 15 November 2014, the government waived VAT on sales of the Band Aid 30 anniversary single for Ebola.
Going forward, it will be interesting to see how the government determines which other charities will qualify for a VAT refund, and which charities will be left with VAT as part of their expenses.