Isle of Man charity admits reclaiming too much VAT

The Manx Society for the Prevention of Cruelty to Animals says it hadn't realised only some of its activities were eligible for VAT exemption

Statement on the charity's website
Statement on the charity's website

An animal-protection charity on the Isle of Man has said it is facing a "significant" tax bill after inadvertently overclaiming when recovering VAT.

In a statement, the Manx Society for the Prevention of Cruelty to Animals said it had until recently been filing VAT returns that reclaimed VAT on all of its goods and services, not realising that only some of its activities were eligible for VAT exemption.

The charity, which had an income of £769,750 and spending of £743,700 in the year to 31 December 2016, said it had been overcharged on VAT by some of its suppliers and had therefore claimed too much when recovering that VAT from the Isle of Man Customs and Excise.

It said it was in the process of assessing how much had been overclaimed and was keen to rectify the issue "in an open and transparent matter" and repay what was owed.

The exact amount that will have to be repaid is not yet known.

Juana Warburton, the general manager of the charity, told Third Sector that, although the sum was expected to be "significant", the charity was confident it had enough in its reserves to pay the bill without affecting front-line services.

Warburton urged other charities to check that they had understood their VAT liabilities and had filed returns correctly.

She declined to comment on when the errors had been discovered, but the charity’s accounts for the year to 31 December 2016, signed off last month, note that the charity was reviewing its VAT position and might have some liability to Customs and Excise.

The statement on the charity’s website said the issue was an "unintended accident" that had "caused those involved much distress".

It said: "The returns in question were prepared and filed in good faith by members of staff who were not VAT specialists and who were doing their best to assist with the charity’s administration.

"Those members of staff are now distraught to find that the returns submitted were not correct and have eagerly assisted in providing the information required to correct the errors made in the past."

It said there was no suggestion or evidence of conspiracy or fraud by those involved.

The misreporting of VAT had started long before most of the current trustees had joined the charity, the statement said.

But despite the efforts of the board and staff to look back through the charity’s records, the statement said, the charity had been unable to establish when the errors began, which previous board members had sanctioned them or whether they had taken specialist advice.

In the statement, the charity also acknowledged that it had not had sufficient expertise in tax and financial matters.

"The current board have recognised this and taken on several new members who have enhanced the board’s capabilities, particularly in the areas of tax, finance and corporate and charity governance," the statement said.

Warburton told Third Sector the charity had recruited two highly qualified accountants to the board and was working with a reputable accountancy firm to review its position.

She said: "The issue of VAT and partial exemption for charities is very complex, and I think there is a lot of misunderstanding in charities both on the island and nationally. More charities will be affected by this, and they need to take advice to ensure they have been filing correctly."

The charity is registered in the Isle of Man, where regulation of charities is carried out jointly by the Central Registry with the HM Attorney General’s Chambers.

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