VAT Compensation Scheme for Charities

A new VAT compensation scheme for charities allows Irish charities to reclaim VAT on certain expenditure. Caroline Butler highlights the key points that charities need to be aware of.

A VAT compensation scheme for charities was introduced in Budget 2018. From 1 January 2019 charities can now reclaim some element of the VAT costs that they incur.

The scheme is designed to compensate charities for a proportion of the VAT they pay on goods or services bought using non-public funding. A capped fund of €5 million will be available in 2019 to finance payments under the scheme. While this is a relatively low amount, the cap is subject to be reviewed in three years.

How will the VAT Compensation Scheme for Charities operate?

To avail of the scheme, a charity must hold a charitable tax exemption (CHY number) from Revenue Commissioners and be registered with the Charities Regulatory Authority (CRA). Charities must also have a tax clearance certificate and up to date audited accounts.

Under the scheme, charities are entitled to claim a refund of a proportion of their VAT costs based on their level of non-public funding.

For example, where 30 percent of a charity’s gross income is derived from State/EU/international organisations and 70 percent is privately sourced (fundraising, subscriptions and donations, etc.), they may reclaim 70 percent of the VAT input costs they have incurred during the year.

VAT incurred on private non-charity related expenses, VAT subject to a refund order, and VAT that is otherwise deductible are not eligible for relief under the scheme

For administrative purposes, claims valued below €500 will not qualify.

Submitting a claim

VAT reclaims made under the scheme can be submitted through Revenue Online Services (ROS). Charities can submit one claim per year which should relate to VAT paid in the previous year only. A VAT reclaim for 1 January—31 December 2018 should be made before 30 June 2019.

Action now required by Charities

Charities need to establish how much of their income is private or publicly funded and what is the approximate proportion.

They also need to identify the VAT costs they are incurring on expenditure.

How FPM can help

We would be happy to assist charities in implementing changes to their accounting systems in order to identify their VAT costs and ensure that their activities are structured to maximise the amount of VAT they can reclaim.