The government has introduced a much-welcomed Value Added Tax (VAT) compensation scheme for charities. This scheme aims to reduce the VAT burden on charities and to partially compensate for VAT paid by the charity. Charities are entitled to claim a refund of a proportion of their VAT costs based on the level of non-public funding they receive.
To qualify for the scheme, a charity must be registered with Revenue and hold a charitable tax exemption (CHY) and be registered with the Charities Regulatory Authority (CRA).
The scheme applies to VAT paid on expenditure on or after 1 January 2018. VAT paid in or prior to 2017 cannot be claimed.
Charities can submit one claim per year which should relate to VAT paid in the previous year only. Claims can be submitted between 1 January and 30 June each year. For example, VAT paid on expenditure in 2018 can be claimed between 1 January and 30 June 2019.
The fund for the scheme will be capped at €5m per annum. Where the total amount of eligible claims from all charities in each year exceeds the capped amount, claims will be paid on a pro-rata basis. The minimum claim which may be submitted is €500. This scheme will be reviewed after three years.
The scheme operates on a cash basis. This means that if a charity orders goods and services in year 1 and does not pay for them until year 2, the amount due to be paid cannot be included as expenditure of year 1.
How do you calculate the claim amount?
The claim is calculated using a number of factors relating to qualifying income and qualifying expenditure.
Qualifying income is the proportion of a charity’s income that is privately funded. To calculate qualifying income, you calculate the total income that the charity received during the year to which the claim relates and then exclude:
- educational fees received if the charity is a school, university, institute of technology or educational establishment
- income from shops, restaurants and retail outlets
- refunds or reliefs received under any other scheme or legislation administered by Revenue
- funding received directly or indirectly from another qualifying charity
- funding, refunds, and reliefs received directly or indirectly from:
- the State, a public body, State bodies, bodies established by statute or bodies which received that funding directly or indirectly from the State
- the European Union or European Union bodies or from bodies which received that funding directly or indirectly from the European Union
- the public funding of any Member State of the European Union, or from a body which received that funding directly or indirectly from the public funding of a Member State of the European Union
- international organisations which received that funding directly or indirectly from the public funding of any country or from a body which received the funds from an international organisation which previously received that funding directly or indirectly from the public funding of any country
- another qualifying charity
Qualifying expenditure is VAT which was paid in the State in the year to which the claim relates for goods or services which were used by the charity solely for its charitable purpose. A charity cannot include any amount that they are entitled to receive under any other scheme or legislation administered by Revenue.
The claim amount (eligible tax) is the amount which is eligible to be claimed based on the level of non-public funding received and it is determined by the formula:
qualifying tax x (qualifying income/total income)
Example: charity A has total income of €100,000. It received a grant from the Government of €20,000. The qualifying income is €80,000. It paid €7,200 in VAT on qualifying expenditure. The claim amount is: €7,200 X (€80,000/€100,000) = €5,760.
How to submit a claim
To submit a claim, you will need the following:
- tax registration number granted by Revenue (CHY)
- written declaration from the CEO or CFO of the claimant charity as to the validity of a claim
- bank account details, for the refund
- A current tax clearance certificate
Revenue may need the following in support of your claim:
- A letter from Charities Regulatory Authority (CRA) confirming registration
- The most recent set of audited accounts. These accounts must be for the financial year of the charity. The year end of the financial year must be the year to which the claim relates or the year in which the claim is being made
- Documentation detailing the following:
- VAT paid
- date of the VAT expenditure
- that the goods and services were applied by the charity only to its charitable purpose
- Documentation proving that the income that the calculation is based on was received in the relevant year
- Proof that the charity was not entitled to a deduction or refund of the tax being claimed under any other legislation administered by Revenue
Claims for VAT compensation must be submitted annually through Revenue Online Service (ROS) between 1 January and 30 June in the year following the year to which the claim relates. A claim can be made by a charity directly or an agent can make a claim on behalf of a charity.
Calculation of payment by the Revenue Commissioners
The amount that Revenue will pay out to each charity will depend on the:
- total amount correctly calculated
- annual amount available for the scheme
- total demand from all applicants
The annual amount available under the scheme is capped at €5m. If the total amount of claims in a year exceeds €5m, any refunds due will be paid to charities on a pro-rata basis.
It is expected that approved repayments will issue in November in the year of the claim.