It is believed that non-profit organizations are exempted from paying taxes. You will come across different opinions and thoughts when you dig deep into the term. Determining the VAT status of any revenue generated in a non-profit or charitable organization is complex. The revenue could arise in different contexts like trading, fundraising, and other investment activities. Since there are no definite rules for a charitable business, some factors are still there that need to be considered. This article guides these factors, which will help you understand the various VAT implications for a charitable business.
VAT Registration for Non-profit Organizations:
When it is enrolled, a foundation can charge VAT on merchandise and ventures and will be needed to present a VAT return at regular intervals utilizing an MTD-viable VAT programming like FreeAgent. A non-profit organization with sales lower than £85,000 does not have to register for VAT since it is not crossing the threshold. Once it crossed the limit, it will have to register just like ordinary business organizations.
Regardless of whether a cause’s VATable deals are beneath £85,000, it can decide to enroll for VAT willfully to recover VAT on its expenses from buying supplies. It can reap several benefits from the registration. Are you interested to willfully register your charity for VAT? Great! You can get in touch with the Best VAT consultancy in Dubai.
Are charities exempt from Value-added taxes VAT?
As discussed, the thought is confusing and contradicted on several fronts. However, we help you throw this confusion out of the window. The rules are simple and plain. No charity or non-profit organization is exempted from VAT; however, the situation changes according to a respective organization’s income level. There are VAT threshold limits defined, and every business should know about them. A common limit for every organization is £85,000.
If a non-profit company’s sales are lower than this limit, VAT is exempted just like the rest of the profitable companies. If the revenue exceeds the threshold, the charity must register for VAT and submit VAT return files as described in the documents.
VAT relief for a non-profit organization:
What are we here for if the conditions are alike for a profitable and non-profit organization? Well, don’t get bore! We have been discussing similar points so far, but here are the differentiating factors. A supplier normally charges a 20% VAT rate from an ordinary profitable business. When it comes to a charity, the supplier charges them the reduced VAT rates. The charity should ask the supplier for a 5% or zero-rated (0%) VAT rate for certain goods.
Moreover, charities are also exempted from VAT on qualifying goods. Qualifying goods incorporate goods categories that are imported from outside the country. Ordinary businesses will pay a higher VAT rate on such products, whereas charities will get relief. Note that local area sports clubs don’t fit the bill for similar VAT reliefs and exceptions as a charity as the terms are often confused.
What goods are VAT exempt for non-profit organizations?
We are about to discuss goods that are subject to a reduced VAT rate from the supplier. Let us get started!
Reduced VAT on fuel and power:
Non-profit organizations and charities pay a reduced VAT rate (5%) on imported fuel and power. The only condition that needs to be filled here is that the fuel and power must be used for the following purposes:
- Non-business activities like providing free child care to distant residents.
- The charity provides free residential accommodation such as care home to a children’s home (hospice).
- Reduced VAT rates are applicable at times when the power and fuel are used on a small scale. A maximum of 1,000 Kilowatts hours of electricity and delivery of up to a maximum of 2300 liters of gas oil.
Note: It is noteworthy that only 60% of gas and power are subject to a reduced VAT rate. If the consumption exceeds 60%, the supplier will charge standard rates of VAT (20%). As a charity runner, you would have difficulty at understanding and remembering all these conditions. Compliance with all these standards is never easy without the best VAT consultancy services in Dubai; take these experts on board for smooth VAT matters.
Zero VAT rate on goods and services:
There are certain goods and services where charities and non-profit organizations can have zero VAT rates. Some of these goods and services are listed here:
- Construction and building work
- Medical supplies and equipment
- Scientific equipment
- Goods and aids for disabled persons
Get in touch with experts for smooth VAT operations:
Business tax operations, no matter how big or small, are always complicated. Such issues are hard when you don’t have the required expertise. Do you face any issues in this regard? Take VAT experts on board to resolve all the issues!