Charities and VAT

Charities only need to account for VAT on those parts of its activities that are within the scope of VAT. A quick checklist follows:

* Sale of donated goods from a charity shop – zero rated supply
* Investment income, bank interest etc – outside the scope of VAT
* Donations from general public – outside the scope of VAT
* Fundraising events – exempt from VAT
* Grants, see below

The VAT status of the charity shops is advantageous. Even if the zero rated sales are below the current registration limit of £73,000, it would be worthwhile registering the trade voluntarily as any associated costs that include VAT can be reclaimed.

Grants received

Although most grants received by a charity are outside the scope of VAT, occasionally grant providers will require the charity to provide services to individuals or groups as a direct condition of grants made. If this is the case the grant is a standard rated transaction. In most cases this will not cause difficulties as most grant providers are Local Authorities that are VAT registered and can claim back any VAT charged.

Nevertheless charities should take care to seek advice and ensure that they charge VAT on grant income when appropriate.

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Flat rate VAT scheme – potential pitfalls

Selling a car, watch out for VAT sting

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If your business accounts for VAT under the flat rate scheme, the sale of a second hand car creates an unwelcome complication – the car must be included in the flat rate takings for the period. This means that although there is no VAT charged on the sale, and no VAT would have been reclaimed on the purchase of the vehicle, the business must account for VAT at their normal flat rate on the proceeds of sale. Accordingly if you sell a car for £1,000 and your VAT flat rate percentage is 10%, you will have to pay £100 to the VAT man!

If the sale price of the car is considerable, the only possible solution is to exit the flat rate scheme before sale, but this extreme step would only be appropriate if enough cash was at stake. It is not possible to rejoin the scheme for 12 months.
If you use the flat rate scheme and will be selling a second hand car in the near future please call, so that we can examine the best strategy for you.
Please be aware that sales of other ‘out of the ordinary’ items may also cause problems. For example the sale of a property or an export sale.
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