For those agreements that fall within the grey area, treating something as a contract when it should be treated as a grant could mean that income is significantly understated in a charity’s accounts. This could be the difference between being subject to audit or not, and may distort figures provided as part of funding applications.
Most importantly, make sure there is a purpose to the process – for example, don’t just keep a risk register because it is seen to be the right thing to do. If it is viewed as a box ticking exercise, then it may be time to consider a new approach to risk management and how this can work for your organisation and be of benefit.
There are a series of reliefs available to them enabling them to pay less or even no VAT. This can assist with cash flow for those charities which can recover the VAT they incur since they don’t have to pay the VAT and then wait to get it back again later on.
One thing we come across many times is that charities don’t want to get involved with VAT and so deliberately try to avoid being seen to be in business. Whilst understandable because the compliance cost can be high and the potential for penalty worrying in the case of error, there can of course be advantages.
“Is my income a grant or a fee?” is a common question we get asked. Clearly, a simple grant is outside the scope of VAT so there is no VAT to concern yourself with but where there is a fee, VAT may well be due.
HMRC are proposing introducing special procedures for partnerships, jointly owned property and sub-contractors in the construction industry whereby one person is made responsible for providing information which will then automatically be added to the individual partner’s/joint property owner’s/ sub-contractors digital account.