A VAT compensation scheme is now operating for charities to reduce the burden of VAT paid in the day to day running of a charity. The scheme applies to VAT paid on expenditure on or after 1 January 2018. From January 2019 charities may be able to reclaim some VAT incurred in 2018. VAT cannot be reclaimed on account of 2017 or earlier years.
Who can make a claim under the VAT compensation scheme?
In order to claim a refund under the VAT compensation scheme a charity must at the date of the claim and at the date the expenditure was incurred:
- Be registered with Revenue and hold a charitable tax exemption under TCA 1997, s.207, and
- Be registered with the Charities Regulatory Authority.
What can be claimed?
The amount that a charity can claim under the VAT compensation scheme is referred to as the claim amount. The level of VAT refund that can be claimed is based on the amount of non-public funding received by the charity.
The claim amount is determined based on the formula:
Qualifying tax x Qualifying income / Total income
Qualifying tax is tax that is paid by the charity on qualifying expenditure. Qualifying expenditure is expenditure on goods and services that were used by the charity only for its charitable purposes. If a charity is entitled to receive any kind of relief, refund, repayment or deductibility under any other scheme or legislation administered by Revenue, they may not include that amount in their claim under the VAT compensation scheme.
Qualifying income is the charity’s income that is privately funded. This excludes publicly funded income.
Total income is the charity’s total income for the year comprising both privately and publicly funded income.
The scheme operates on a cash basis so all references to income received or expenditure paid is to actual monies received or paid out in the calendar year to which the claim relates. If a charity orders goods or services one year but pays for them the following year the VAT reclaim must be made in the year of payment.
The minimum claim that can be submitted is €500.
The total amount available to be paid out under the scheme is capped at €5m. Where the total amount claimed by all charities in a year exceeds €5m the claims will be paid on a pro-rata basis. Accordingly Revenue may pay charities less than the amount they claimed.
Where to make the claim?
Claims for VAT compensation must be submitted through the Revenue Online System (ROS).
When to make the claim?
A claim under the VAT compensation scheme is made in respect of a calendar year. The claim must be submitted by the 30th June of the year following the calendar year to which the claim relates.
Why make the claim?
Charities raise funds from private sources and use the funds to pay for goods and services used for its charitable purposes. The costs of these goods and services include VAT. The VAT compensation scheme will reduce the VAT burden on goods and services used by charities which are funded by their private fundraising.
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