New Forest

28/12/2022

VAT changes

HMRC has made changes to two key VAT Notices for the charity sector.

VAT Notice 701/1 – ‘How VAT affects charities’, has seen the business test section updated to reflect a two stage test to bring it into line with a recent policy change. It makes clear that although an organisation may be run on a not-for-profit basis it could still be regarded as a business for VAT purposes if there is a direct link between the services received and the payment made.

This is ascertained through a two stage test:

• Stage 1: The activity results in a supply of goods or services for consideration.
• Stage 2: The supply is made for the purpose of obtaining income (remuneration).

As a result of this change in approach certain charities may now be considered to be carrying on a business for VAT purposes, with childcare charities providing nursery or creche facilities being one area that could be caught.

VAT Notice 701/58 – ‘Goods or services supplied to charities’, has also been updated to make clear when zero rate VAT can be applied for advertisements and goods used for the collection of donations.

Guidance: https://bit.ly/3UOXai2
https://bit.ly/3SKnU1j

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