HMRC’s One-To-Many team is reaching out with an important educational email to support small VAT-registered charities with a turnover of up to £2 million.
The goal is to raise awareness about the requirement to complete business/non-business apportionment calculations and address the common issue of overclaimed input tax related to non-business activities.
Understanding Business and Non-Business Activities
The key question raised in HMRC’s email is: Do you know the difference between business and non-business activities?
Many charities and voluntary bodies are unaware that they may carry out non-business activities. This lack of understanding can lead to incorrect VAT claims, as non-business activities affect the amount of input tax a charity can recover.
For VAT purposes, ‘business’ refers to activities primarily concerned with making supplies for consideration (i.e., providing goods or services for payment). Non-business activities, on the other hand, are those that are not carried out for consideration, such as providing free services or receiving grants and donations without supplying goods or services in return.
What Charities Need to Do
HMRC is encouraging small VAT-registered charities to review their activities and ensure they understand their tax responsibilities. Specifically, charities should:
- Review HMRC’s Guidance on GOV.UK:
- Section 4.6 explains the difference between business and non-business activities and includes examples of non-business activities.
- Section 32 details how to apportion tax between business and non-business activities.
- Seek Expert Advice if Needed:
Navigating VAT apportionment and understanding these distinctions can be complex. Charities are encouraged to consult a tax adviser if they are unsure how to proceed. - Address Overclaimed Input Tax:
If a charity discovers it has overclaimed input tax due to non-business activities, it should notify HMRC. VAT Notice 700/45 provides guidance on how to report errors on previous VAT returns.
Potential Penalties for Non-Compliance
HMRC emphasises the importance of addressing any errors promptly. Failure to comply with VAT rules can result in penalties. Charities can find more information about compliance checks and penalties on GOV.UK by searching for “HMRC compliance checks factsheets.”
HMRC’s Commitment to Supporting Charities
HMRC understands that VAT compliance can be challenging, particularly for small charities. By providing clear guidance and resources, the One-To-Many team aims to help charities get their tax right the first time and avoid unnecessary complications.
If you’re unsure about your business/non-business activities or apportionment calculations, now is the time to act. Ormerod Rutter’s dedicated VAT team would be happy to help ensure your VAT returns are accurate.
For more information, contact us on 01905 777600 or email hello@ormerodrutter.co.uk
By staying informed and proactive, your charity can focus on its vital work while remaining compliant with VAT regulations.
More news about HMRC can be found on our insights page.
