Interview: Kate Sayer, charity auditor and adviser on VAT rebates

Too many charities are losing out on possible VAT rebates because they do not understand the complex legislation surrounding VAT registration, according to charity auditor and adviser Kate Sayer.

"A lot of charities are filing VAT in the 'too difficult' category and ignoring it," says Sayer, whose book A Practical Guide to VAT, published by the Directory of Social Change, has just gone into its third edition.

"Many of them aren't registering for VAT when they should be doing so, and are losing out on a lot of money."

Charities must pay tax on what they buy, but often they neither reclaim it nor pass it on to an end-user. Some concessions do exist on advertising and building work, but in most cases charities end up paying the same as anyone else.

"It's a growing problem for the sector, because more charities are engaging in commercial activities on which they could recover VAT," Sayer says.

The separate issue of irrecoverable VAT is expected to cost the sector more than £650m in 2008. Despite years of campaigning for a change in the law, charities are facing even more problems.

"A lot of charities are being caught by this," Sayer says. "The situation is most difficult if you have several different activities to which different VAT schemes apply."

Sayer says VAT-registered charities need to identify three key types of activity: those that are zero-rated and for which all VAT is recoverable; those on which they can reclaim VAT like a regular business; and those for which VAT is completely irrecoverable.

"So long as you know which is which," she says, "you can go to the local VAT office and work out a scheme of payment."

Sayer says charities are getting more VAT-savvy. Some are even challenging the decisions of HM Revenue & Customs in specific cases and winning ground in tribunals. But she believes too many in the sector are still ignoring it.

"Even a charity as small as a local village hall needs to look at this," she says. "It will probably be paying VAT on its fuel bills - and charities can get reduced rates. Small charities are losing money like everyone else."

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