Tag Archives: VAT-input-tax

VAT – Care with input tax claims

By Marcus Ward 20 January 2026

Claim checklist

You have a purchase invoice showing VAT. You are VAT registered, and you will use the goods or services purchased for your business… can you claim it?

Assuming a business is not partly exempt or not subject to a restriction of recovery of input tax due to non-business activities (and the claim is not for a motor car or business entertainment) the answer is usually yes.

However, HMRC is now, more than ever before, concerned with irregular, dishonest and inaccurate claims. It is an unfortunate fact that some people see making fraudulent claims as an “easy” way to illegally obtain money and, as is often the case, honest taxpayers are affected as a result of the (understandable) concerns of the authorities. Missing Trader Intra-Community (MTIC) or “carousel” fraud has received a lot of publicity over recent years with an estimate of £Billions of Treasury money being obtained by fraudsters. While this has been generally addressed, HMRC consider that there is still significant leakage of VAT as a consequence of dishonest claims. HMRC’s interest also extends to “innocent errors” which result in input tax being overclaimed.

In order to avoid unwanted attention from HMRC, what should a business be watching for when claiming credit for input tax? Broadly, I would counsel making “reasonable enquiries”. This means making basic checks in order to demonstrate to HMRC that a business has taken care to ensure that a claim is appropriate. This is more important in some transactions than others and most regular and straightforward transactions will not be in issue. Here are some pointers that I feel are important to a business:

Was there a supply?

This seems an obvious question, but even if a business holds apparently authentic documentation; if no supply was made, no claim is possible. Perhaps different parts of a business deal with checking the receipt of goods or services and processing documents. Perhaps a business has been the subject of fraud by a supplier. Perhaps the supply was to an individual rather than to the business. Perhaps a transaction was aborted after the documentation was issued. There may be many reasons for a supply not being made, especially when a third party is involved. For example, Co A contracts with Co B to supply goods directly to Co C. Invoices are issued by Co B to Co A and by Co A to Co C. It may not be clear to Co A whether the goods have been delivered, or it may be difficult to check. A lot of fraud depends on “correct” paperwork existing without any goods or services changing hands.

Is the documentation correct?

The VAT regulations set out a long list of details that a VAT invoice must show. Full details on invoicing here If any one of these required items is missing HMRC will disallow a claim. Beware of “suspicious” looking documents including manually amended invoices, unconvincing quality, unexpected names or addresses of a supplier, lack of narrative, “copied” logos or “clip-art” additions etc. One of the details required is obviously the VAT number of the supplier. VAT numbers can be checked for validity here

Additionally, imports of goods require different documentation to support a claim and this is a more complex procedure (which extends to checking whether supplies of goods have been made and physical access to them). A lot of fraud includes a cross border element so extra care should be taken in checking the validity of both the import and the documentation.

Ultimately, it is easy to create a convincing invoice and HMRC is aware of this.

Timing

It is important to claim input tax in the correct period. Even if a claim is a day out it may be disallowed and penalties levied. details of time of supply here

Is there VAT on a supply?

If a supplier charges VAT when they shouldn’t, eg; if a supply is zero rated or exempt or subject to the Transfer of A Going Concern rules (TOGC), it is not possible to reclaim this VAT even if the recipient holds an apparently “valid” invoice. HMRC will disallow such a claim and will look to levy penalties and interest. When in doubt; challenge the supplier’s treatment.

Place of supply

Only UK VAT may be claimed on a UK return, so it is important to check whether UK VAT is actually applicable to a supply. The place of supply (POS) rules are notoriously complex, especially for services, if UK VAT is shown on an invoice incorrectly, and is claimed by the recipient, HMRC will disallow the claim and look to levy a penalty, so enquiries should be made if there is any uncertainty. VAT incurred overseas can, in most cases be recovered, but this is via a different mechanism to a UK VAT return. Details on claiming VAT in other EC Member States here. (As with many things, this may change after Brexit).

One-off, unusual or new transactions

This is the time when most care should be taken, especially if the transaction is of high value. Perhaps it is a new supplier, or perhaps it is a property transaction – if a purchase is out of the ordinary for a business it creates additional exposure to mis-claiming VAT.

To whom is the supply made?

It is only the recipient of goods or services who may make a claim; regardless of; who pays or who invoices are issued to. Care is required with groups of companies and multiple VAT registrations eg; an individual may be registered as a sole proprietor as well as a part of a partnership or director of a limited company, As an illustration, a common error is in a situation where a report is provided to a bank (for example for financing requirements) and the business pays the reporting third party. Although it may be argued that the business pays for the report, and obtains a business benefit from it, the supply is to the bank in contractual terms and the business cannot recover the VAT on the services, in fact, in these circumstances, nobody is able to recover the VAT. Other areas of uncertainty are; restructuring, refinancing or acquisitions, especially where significant professional costs are involved.

e-invoicing

There are additional rules for electronically issued invoices. Details here

A business may issue invoices electronically where the authenticity of the origin, integrity of invoice data, and legibility of invoice content can all be ensured, and the customer agrees to receive invoices electronically.

‘Authenticity of the origin’ means the assurance of the identity of the supplier or issuer of the invoice
‘Integrity of content’ means that the invoice content has not been altered
‘Legibility’ of an invoice means that the invoice can be easily read.

A business is free to choose a method of ensuring authenticity, integrity, and legibility which suits its method of operation. e-invoicing provides additional opportunities for fraudsters, so a business needs to ensure that its processes are bulletproof.

HMRC’s approach

If a claim is significant, or unusual for the business’ trading pattern, it is likely that HMRC will carry out a “pre-credibility” inspection where they check to see if the claim is valid before they release the money. Another regular check is for HMRC to establish whether the supplier has declared the relevant output tax on the other side of the transaction (a so-called “reference”). Not unsurprisingly, they are not keen on making a repayment if, for whatever reason, the supplier has not paid over the output tax.

What should a business do?

In summary, it is prudent for a business to “protect itself” and raise queries if there is any doubt at all over making a claim. It also needs a robust procedure for processing invoices. If enquiries have been made, ensure that these are properly documented for inspection by HMRC as this is evidence which may be used to mitigate any potential penalties, even if a claim is an honest mistake. A review of procedures often flushes out errors and can lead to increased claims being made.

As always, we are happy to assist.

VAT: Partial exemption input tax attribution. The Littlewoods case

By Marcus Ward 13 January 2026

Latest from the courts

In the Littlewoods Limited First-tier Tribunal (FTT) case the issue was the ability to recover input tax incurred on photography costs.

Background

Littlewoods used photographers for the creation of product specific photographs for use in catalogues and in connection with its online retail store. It made claims to recover this input tax, but HMRC refused a full refund. This appeal was against that decision.

The appellant is partly exempt. It makes taxable sales of goods and also makes exempt supplies of finance and insurance. This means that it is unable to recover all input tax it incurs.

Contentions

The appellant argued that the photography costs were directly attributable to the sale of the products photographed and was consequently fully recoverable.

HMRC contended that not all of the VAT was claimable because an element was referable to the exempt supplies (ie: the input tax was incurred to support both the online taxable sale of goods and of exempt finance). Therefore, an apportionment was required.

Decision

The appeal was allowed.

The Tribunal considered that each use made of the photographs to be exclusively in the making of taxable supplies of retail goods. Any link to credit or insurance was, in its view, at the most, indirect but, given the nature of the costs, probably non-existent. Consequently, the photography did not promote any finance or insurance products so that no restriction of the input tax claims was required.

Commentary

Yet another case on input tax attribution. As someone once said; partial exemption is more of an art than a science…

The judge distinguished this appeal from the N Brown case as the circumstances were different and that the court applied the wrong legal test in terms of the micro/macro level of business per the Royal Opera House case.

Charities and VAT – A Guide

By Marcus Ward 18 November 2025

Surely charities don’t have to pay taxes?

This is a common myth, and while charities and Not-For-Profit entities (NFPs) do enjoy some VAT reliefs, they are also liable for a number of VAT charges.

Charities have a very hard time of it in terms of VAT, since not only do they have to contend with complex legislation and accounting (which other businesses, no matter how large or complicated do not) but VAT represents a real and significant cost.

By their very nature, charities carry out “non-business” activities which means that VAT is not recoverable on the expenses of carrying out these activities. Additionally, many charities are involved in exempt supplies, eg; fundraising events, property letting, and certain welfare and educational services, which also means a restriction on the ability to recover VAT on attributable costs.

These two elements are distinct and require separate calculations which are often very convoluted. The result of this is that charities bear an unfair burden of VAT, especially so since the sector carries out important work in respect of; health and welfare, poverty, education and housing etc. Although there are some specific reliefs available to charities, these are very limited and do not, by any means, compensate for the overall VAT cost charities bear.

Another issue is legal uncertainty over what constitutes “business income” for charities, especially the VAT status of grants. It is worth bearing in mind here the helpful comment in the EC case of Tolsma translated as: “…the question is whether services carried on by [a person] were carried on for the payment or simply with the payment”.

Many charities depend on donations which, due to the economic climate have fallen in value at a time when there is a greater demand on charities from struggling individuals and organisations.

What can be done?

ensure any applicable reliefs are taken advantage of
if significant expenditure is planned, ensure that professional advice is sought to mitigate any tax loss
review the VAT position to ensure that the most appropriate partial exemption methods and non-business apportionment is in place
review any land and property transactions. These are high value and some reliefs are available. Additionally it is usually possible to carry out planning to improve the VAT position of a property owning charity
review VAT procedures to ensure that VAT is declared correctly. Penalties for even innocent errors have increased recently and are incredibly swingeing
consider a VAT “healthcheck” which often identifies problems and planning opportunities

We have considerable expertise in the NFP sector and would be pleased to discuss any areas of concern, or advise on ways of reducing the impact of VAT on a charity.

More detail on VAT and Charities for guidance

Business activities

It is important not to confuse the term ‘trading’ as frequently used by a charity to describe its non-charitable commercial fund-raising activities (usually carried out by a trading subsidiary) with ‘business’ as used for VAT purposes. Although trading activities will invariably be business activities, ‘business’ for VAT purposes can have a much wider application and include some or all of the charity’s primary or charitable activities.

Registration and basic principles

Any business (including a charity and NFP or its trading subsidiary) which makes taxable supplies in excess of the VAT registration threshold must register for VAT. Taxable supplies are business transactions that are liable to VAT at the standard rate, reduced rate or zero rate.

If a charity’s income from taxable supplies is below the VAT registration threshold it can voluntarily register for VAT but a charity that makes no taxable supplies (either because it has no business activities or because its supplies or income are exempt from VAT) cannot register.

Charging VAT

Where a VAT-registered charity makes supplies of goods and services in the course of its business activities, the VAT liability of those supplies is, in general, determined in the normal way as for any other business. Even if VAT-registered, a charity should not charge VAT on any non-business supplies or income.

Reclaiming VAT

This is usually a two stage process (a combined calculation is possible but it must have written approval from HMRC – Notice 706 para 7) . The first stage in determining the amount of VAT which a VAT-registered charity can reclaim is to eliminate all the VAT incurred that relates to its non-business activities. It cannot reclaim any VAT it is charged on purchases that directly relate to non-business activities. It will also not be able to reclaim a proportion of the VAT on its general expenses (eg; telephone, IT and electricity) that relate to those non-business activities.

Once this has been done, the remaining VAT relating to the charity’s business activities is input tax.

The second stage: It can reclaim all the input tax it has been charged on purchases which directly relate to standard-rated, reduced-rated or zero-rated goods or services it supplies.

It cannot reclaim any of the input tax it has been charged on purchases that relate directly to exempt supplies.

It also cannot claim a proportion of input tax on general expenses (after adjustment for non-business activities) that relates to exempt activities unless this amount, together with the input tax relating directly to exempt supplies, is below the minimis limit.

Business and non-business activities

An organisation such as a charity that is run on a non-profit-making basis may still be regarded as carrying on a business activity for VAT purposes. This is unaffected by the fact that the activity is performed for the benefit of the community. It is therefore important for a charity to determine whether any particular transactions are ‘business’ or ‘non-business’ activities. This applies both when considering registration (if there is no business activity a charity cannot be registered and therefore cannot recover any input tax) and after registration. If registered, a charity must account for VAT on taxable supplies it makes by way of business. Income from any non-business activities is not subject to VAT and affects the amount of VAT reclaimable as input tax.

‘Business’ has a wide meaning for VAT purposes based upon Directive 2006/112/EC (which uses the term ‘economic activity’ rather than ‘business’), UK VAT legislation and decisions by the Courts and VAT Tribunals. An activity may still be business if the amount charged does no more than cover the cost to the charity of making the supply or where the charge made is less than cost. If the charity makes no charge at all the activity is unlikely to be considered business.

An area of particular difficulty for charities when considering whether their activities are in the course of business is receipt of grant funding.

Partial Exemption

The VAT a business incurs on running costs is called input tax. For most businesses this is reclaimed on VAT returns from HMRC if it relates to standard rated or zero rated sales that that business makes. However, a business which makes exempt sales may not be in a position to recover all of the input tax which it incurred. A business in this position is called partly exempt. Generally, any input tax which directly relates to exempt supplies is irrecoverable. In addition, an element of that business’ general overheads are deemed to be in part attributable to exempt supplies and a calculation must be performed to establish the element which falls to be irrecoverable.

Input tax which falls within the overheads category must be apportioned according to a so called; partial exemption method. The “Standard Method” requires a comparison between the value of taxable and exempt supplies made by the business. The calculation is; the percentage of taxable supplies of all supplies multiplied by the input tax to be apportioned which gives the element of VAT input tax which may be recovered. Other partial exemption methods (so called Special Methods) are available by specific agreement with HMRC. There is also a de minimis relief.

My flowchart may be of use: partial exemption flowchart

Summary

One may see that this is a complex area for charities and not for profit entities to deal with. Certainly a review is almost always beneficial, as are discussions regarding partial exemption methods.

Please click here for more information on our services for charities.

VAT: Input tax incurred on the management of pension funds

By Marcus Ward 1 July 2025

HMRC has published Revenue and Customs Brief 4 (2025), which provides information about changes to VAT deduction on costs incurred in respect of the management of pension funds.

The Brief explains a further policy change to VAT deduction on the management of pension funds – Employers can now claim all the VAT on investment costs linked to pension funds. HMRC will no longer view investment costs as being subject to dual-use. Instead, all the associated input tax incurred will be seen as the employer’s and deductible by the employer, subject to normal deduction rule

They no longer need to split the costs with pension trustees. This was (prior to the introduction of the changes on 18 June 2025) a dual-use apportionment.

This Brief is relevant to:

businesses and other taxable entities that provide pension funds for their employees
pension administration and asset management service providers
pension fund trustees and pension providers
tax advisers

Impact on partial exemption methods

Businesses may need to propose new partial exemption special method (PESM) to align their VAT recovery with the new policy.

Background

HMRC’s historic policy was that employers could recover input tax they incurred on costs relating to the administration of their occupational pension funds, but not those in relation to the asset management of investments made by the fund.

Subsequently, HMRC changed its policy to allow employers recovery of input tax incurred on investment costs, provided that the employer could show evidence that they contracted and paid for the investment services.

HMRC has said that it will publish additional guidance on the new policy by Autumn 2025.

Commentary

This is very welcome news for managers of pension funds. It provides clarity and simplification in accounting, plus, more significantly; a much-improved VAT position whereby irrecoverable input tax can be avoided.

The HMRC climbdown is originally a result of the Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) CJEU case which considered an employer’s entitlement to deduct VAT paid on services relating to the administration of defined benefit pension funds and the management of the assets of the fund..

New VAT road fuel scale charges from 1 May 2025

By Marcus Ward 6 May 2025

HMRC has published new Road Fuel Scale Charges (RFSC) for the period 1 May 2025 to 30 April 2026.

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

VAT: Input tax claims – alternative evidence

By Marcus Ward 12 February 2025

What can be used to make a claim?

It is well known that in order to claim input tax on expenditure a business is required to have a valid tax invoice to support it. But what if there is no VAT invoice? Can HMRC accept any other evidence to support a claim? Well, the answer is yes… sometimes.

HMRC has discretion provided by legislation: VAT Regulations 1995/2518 Reg 29(2). Specifically, the wording most relevant here is “…such other documentary evidence of the charge to VAT as the Commissioners may direct.” Broadly, a business must hold the correct evidence before being able to exercise the right to deduct.

Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff are required to consider whether there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff should not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. However, this obligation is balanced against a duty to protect the public revenue.

Full details of tax invoices here.

What HMRC consider

HMRC staff are required to work through the following checklist:

Does the business have alternative documentary evidence other than an invoice (for example a supplier statement)?
Does the business have evidence of receipt of a taxable supply on which VAT has been charged?
Does the business have evidence of payment?
Does the business have evidence of how the goods/services have been consumed or evidence regarding their onward supply?
How did the business know the supplier existed?
How was the business relationship with the supplier established? For example: How was contact made?
Does the business know where the supplier operates from (have staff visited?)
How did the business contact them?
How does the business know the supplier can supply the goods or services?
If goods, how does the business know they are not stolen?
How does the business return faulty supplies?

Outcome

If the responses to the above tests are credible, HMRC staff should exercise their discretion to allow the taxpayer to deduct the input tax. Overall, HMRC is required to be satisfied that sufficient evidence is held by the business which demonstrates that VAT has been paid on a taxable supply of goods or services received by that business and which were used by that business for its taxable activities

Challenge HMRC’s decision

A business may only challenge HMRC’s decision not to allow a claim (did not exercise its discretion) if it acted in an unfair or unreasonable way. In these cases, the onus is on the taxpayer to demonstrate that HMRC have been unreasonable in not using the available discretion. This is quite often a difficult thing to do.

Case law

Not surprisingly, there is significant case law on this subject. The most relevant and recent being the Upper Tribunal (UT) cases of James Boyce Scandico Ltdv and Wasteaway Shropshire Limited.

Tips

If possible, always obtain a proper tax invoice from a supplier, and don’t lose it! The level of evidence required when no invoice is held usually depends on the value of the claim. There would be a difference between persuading an inspector that £20 input tax on stationery is recoverable and the claiming of £200,000 VAT on a property purchase is permissible. As always in VAT, if you get it wrong and claim VAT without the appropriate evidence there is likely to be a penalty to pay.

If you, or your clients are in dispute with HMRC on input tax claims, please contact us.

VAT: Museums and galleries – updated guidance

By Marcus Ward 16 August 2024

The HMRC guidance for galleries and museums Notice 998 has been updated to reflect changes to the VAT (Refund of Tax to Museums and Galleries) (Amendment) Order 2024.

The Notice applies to those museums or galleries that offer free admission to the public and which are eligible for refunds of VAT under the museums and galleries VAT Refund Scheme. It can be used to find out which museums or galleries offering free admission are eligible for refunds under the scheme. The VAT Act 1994, section 33A, sets out how the scheme works, but generally:

Museums and galleries offering free access are not in business in relation to this activity (their supplies are “non-business“). They may, of course, have other activities that in their own right which are business activities, eg; catering, sales of books and gifts and exhibitions for which there is a charge.

Normally, it is not possible to recover the VAT incurred on goods and services purchased to support non-business activities. Thus, VAT incurred in connection with the free admission of the public is not normally recoverable and represents a cost to these organisations.

However, HMRC will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an Order made by HM Treasury.

What VAT CAN’T you claim?

By Marcus Ward 12 August 2024

VAT Basics

The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:

Blocked VAT claims – an overview

No supporting evidence

In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice”) although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC mayaccept alternative evidence, however, they are not duty bound to do so (and rarely do unless the amount is minimal). So ensure that you always obtain and retain the correct documentation.

Incorrect supporting evidence

Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing.

Input tax relating to exempt supplies

Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here.

Input tax relating to non-business activities

If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here

Time barred

If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.

VAT incurred on business entertainment

This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable. A flowchart for recoverability in this area here.

Car purchase

In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.

Car leasing

If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.

Fuel costs

The element of fuel costs used for personal use is blocked. There are three ways to treat input tax on fuel:

- claim 100% of the VAT charged. This is possible if fuel is bought for business motoring only or for both business and private motoring and the appropriate road fuel scale charge is applied on the value of supplies of fuel for private use
- use detailed mileage records to separate business mileage from private mileage and only claim for the business element
- claim no input tax

A business using certain schemes

For instance, a business using the Flat Rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on for Tour Operators’ Margin Scheme (TOMS) users

VAT charged in error

Even if a business obtains an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.

Goods and services not used for a business

Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for that business’ use. This may be because the purchase is for personal use, or by another business or for purposes not related to the claimant business.

VAT paid on goods and services obtained before VAT registration

This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and which were purchased within four years of registration, and services received within six months of registration if certain conditions are met.

VAT incurred by property developers

Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked.

Second hand goods

Goods sold to a business under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.

Transfer of a going concern (TOGC)

Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.

Disbursements

A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here.

VAT incurred overseas

A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant authorities in those States. Details here. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.

Business assets of £50,000 and more

There are special rules for reclaiming input tax using the Capital Goods Scheme, which means a business must spread the initial VAT claimed over a number of years.

VAT – Charity Fundraising Exemption

By Marcus Ward 2 May 2024

Avoid adding VAT to fundraising income

There are very few VAT reliefs for charities (and it may be argued that an exemption is more than a burden than a relief) but there is an exemption for a charity which qualifies as undertaking a one-off fundraising event. The criteria are quite restrictive, and it is important that the correct treatment is applied. Furthermore, it may be in a charity’s interest to avoid the exemption if there is a lot of input tax attributable to the event, say; venue hire, entertainment, catering etc.

A qualifying event means that a charity (or its trading subsidiary) does not charge VAT on money paid for admittance to that event.

What is covered?

In order to be exempt, the event must be a one-off fundraising event which is “any event organised and promoted primarily to raise funds (monetary or otherwise) for a charity”. Consequently, we always advise clients to make it clear on tickets and advertising material (including online) that the event is for raiding funds and to use a statement; “all profits will be used to support the charitable aims of XYZ” or similar.

HMRC say that an event is an incident with an outcome or a result. This means that activities of a semi-regular or continuous nature, such as the operation of a shop or bar, cannot therefore be an event.

The following are examples of the kind of event which qualify:

ball, dinner dance, disco or barn dance
performance – concert, stage production and any other event which has a paying audience
showing of a film
fete, fair or festival
horticultural show
exhibition: art, history or science
bazaar, jumble sale, car boot sale, or good-as-new sale
sporting participation (including spectators): sponsored walk or swim
sporting performance
game of skill, contest or a quiz
participation in an endurance event
fireworks display
dinner, lunch or barbecue
an auction of bought in goods

Tip

Often there may be an auction of donated goods at a fundraising event. There is a specific and helpful relief for such sales. The sale of donated goods is zero rated which means any attributable input tax is recoverable. Consequently, if both exempt and zero rated supplies are made it is possible to apportion input tax to a charity’s benefit. Zero rating may also apply to sales such as: food (not catering) printed matter and children’s clothing

Limit to the number of events held

Eligible events are restricted to 15 events of the same kind in a charity’s financial year at any one location. The restriction prevents distortion of competition with other suppliers of similar events which do not benefit from the exemption. If a charity holds 16 or more events of the same kind at the same location during its financial year none of the events will qualify for exemption. However, the 15-event limit does not apply to fundraising events where the gross takings from all similar events, such as coffee mornings, are no more than £1,000 per week.

Clearly, the number of events needs to be monitored and planning will therefore be available should exemption be desired (or avoided as the relevant figures dictate).

What is a charity?

This seems to be a straightforward question in most cases, but can cause difficulties, so it is worthwhile looking at the VAT rules here.

Bodies have charitable status when they are:

registered, excepted or exempted from registration with the Charity Commission in England and Wales
registered by the Office of the Scottish Charity Regulator (OSCR) in Scotland
invited to register by The Charity Commission for Northern Ireland which are treated by HMRC as charitable.

Not all non-profit making organisations are charities. The term ‘charity’ has no precise definition in any law. Its scope has been determined by case law. It is therefore necessary to establish whether an organisation is a charity using the following guidelines:

charities are non-profit distributing bodies established to advance education, advance religion, relieve poverty, sickness or infirmity or carry out certain other activities beneficial to the community
in England and Wales charities must normally register with Charity Commission- some very small charities don’t need to register with Charity Commission, there are also some other special cases where particular bodies do not need to register, if there is uncertainty regarding a position see the Charity Commission website
in Scotland all charities must be registered with the OSCR – HMRC decides whether bodies in Northern Ireland are eligible.

Trading arm

It is worth noting that HMRC also accept that a body corporate which is wholly owned by a charity and whose profits are payable to a charity, will qualify and may therefore may apply the VAT exemption to fundraising events. This means that a charity’s own trading company can hold exempt fundraising events on behalf of the charity.

Further/alternative planning

If sales are not exempt as a fundraising event, there is a way to avoid VAT being chargeable on all income received. It is open to a charity to set a basic minimum charge which will be standard rated, and to invite those attending the event to supplement this with a voluntary donation.

The extra contributions will be outside the scope of VAT (not exempt) if all the following conditions are met:

it is clearly stated on all publicity material, including tickets, that anyone paying only the minimum charge will be admitted without further payment
the extra payment does not give any particular benefit (for example, admission to a better position in the stadium or auditorium)
the extent of further contributions is ultimately left to ticket holders to decide, even if the organiser indicates a desired level of donation
for film or theatre performances, concerts, sporting fixtures etc, the minimum charge is not less than the usual price of the particular seats at a normal commercial event of the same type
for dances, and similar functions, the minimum total sum upon which the organisers are liable to account for VAT is not less than their total costs incurred in arranging the event

It should be noted that any other donations collected at an event are also outside the scope of VAT.

Partial exemption

A charity must recognise the impact of making exempt supplies (as well as carrying out non-business activity). These undertakings will have an impact on the amount of input tax a charity is able to recover. Details here

Summary

We find that charities are often confused about the rules and consequently fail to take advantage of the VAT position. This also extends to school academies which are all charities. It is usually worthwhile for charities to carry out a VAT review of its activities as quite often VAT savings can be identified.

VAT Road Fuel Scale Charges from 1 May 2024

By Marcus Ward 22 April 2024

HMRC has issued its 1 May 2024 to 30 April 2025 Road Fuel Scale Charges (RFSC)

RFSC