It is commonly thought that only businesses need to be registered for VAT, and that Charities either cannot be registered, or need not be registered. In fact, there is no over-riding principle that prevents a Charity from registering for VAT.
A Charity may be required to register for VAT; or it may be beneficial to do so. Registration for VAT is therefore mandatory or voluntary. Of course, a Charity may not need to register for VAT.
A Charity will be required to register for VAT if it makes ‘taxable supplies’ in the course of its business activities, and if the value of those supplies exceeds the registration threshold. In this case, registration is mandatory.
In some cases, a Charity may incorporate a subsidiary trading company, to make such ‘taxable supplies.’ If so, then it should consider a Group VAT registration, which will allow the Charity to register as well. This is subject to specific rules. In particular, the subsidiary has to be ‘controlled’ by the Charity.
We have found that, if a Charity owns a building, and its subsidiary trades from that building, then a Group VAT registration can help with recovery of VAT.
A Charity may apply for voluntary registration where (1) it makes taxable supplies but below the registration threshold, or (2) it does not make taxable supplies, but intends to do so. In applying for voluntary registration the Charity will have to evidence its future plans to HMRC.
This options should be approached carefully, as there would be consequences, such as the need to charge customers VAT.
Even if a Charity does not need to register for VAT, it should be aware of the cost of irrecoverable VAT, and seek advice on ways this may be mitigated.
The timing of VAT registration, and even the back-dating of registration, should also be carefully considered. We have come across some situations where a Charity was registered for VAT when it did not need to be. In such situations deregistration for VAT has to be carefully considered. Legislation provides that, where the Charity has claimed input tax on an asset still owned by it, this may be clawed back by HMRC.