Charities Management – VAT advice

Andrew Stephenson, our senior VAT and tax investigation manager, reveals many animal charities may be unaware they can claim back VAT, potentially saving them significant sums.

Animal charities which care or re-house lost and abandoned pets may be missing out on significant tax savings.

Many such charities are very small, run by volunteers, and do not have access to the business advice larger good causes can often call on for help.

As a result, there are many charities unaware that they may be entitled to register for VAT and to reclaim VAT on many of the essential costs they incur in the day-to-day running of their business. Some animal charities are able to claim the VAT on the operating costs they have paid out simply to keep the charity going, such as rent or fuel payments.

With the standard rate of VAT at 20% clearly this may be a significant saving for charities, many of which rely on donations simply to continue operating day-to-day.

Good causes which incur the tax on costs including premises rental, buying or leasing vans, vehicle fuel or repairs, along with repairs and upkeep to premises such as electricity  and heating bills, may be eligible.

The opportunity is available thanks to two important Tribunal rulings. The first, from 2008, involved Gables Farm Dogs & Cats Home, aPlymouthbased charity established to rescue and shelter lost, unwanted and homeless dogs and cats. The charity sold the animals to new owners, and treated such sales as zero rated for VAT.

However, HMRC charged the charity tax on the basis that the animals which had been abandoned were not ‘donated for sale,’ a key part of the regulations concerning VAT. The charity then appealed, and the Tribunal allowed the appeal holding that “a gift of a stray cat or dog to the appellant by a person other than the original owner was capable of transferring ownership rights in the animal to the appellant.”  The animals therefore come within the definition of “donated goods” and qualify for zero-rating.

As a result, HMRC now accept that charities selling animals in these circumstances can zero rate their sales.

The second ruling dates from 2011, and concerns Three Counties Dog Rescue,Lincolnshire. Three Counties also received abandoned and rescued dogs, re-housing them in return for a payment which it classified as a ‘donation.’

Following the Gables decision, Three Counties also applied to HMRC to register for VAT and therefore submitted reclaims of VAT. However, HMRC rejected the claims on the basis that it was ‘merely re-homing dogs in return for a voluntary donation’ which were not taxable supplies so Three Counties could not therefore be registered for VAT.

The charity appealed, arguing that the donations it received meant it was entitled to be registered. The Tribunal accepted this argument and allowed the appeal.

There are a number of factors which determine whether charities making similar supplies are eligible to be VAT registered, such as the way people make donations, and there are also strict parameters set by the relevant legal rulings.

Those charities which believe they may fit into this category should take advice from their accountant or a specialist VAT advisor, who can look at how the charity is run and whether VAT can be reclaimed, or whether it is possible to amend the way in which the charity operates to enable it to take advantage of the Tribunal rulings.