New rules make it easier for charities to calculate VAT reclamation

Charities that run businesses can calculate tax based on estimates from previous year

Charities that run business activities will find it easier to calculate the percentage of VAT they can reclaim under new rules made by HM Revenue & Customs.

The new partial exemption rules, which came into effect from 1 April, allow charities to calculate VAT based on estimates from the previous year, then make an adjustment at the end, rather than having to make exact calculations in each VAT return.

They also allow charities that are new to the rules to calculate their payments based on provisional calculations, rather than having to wait until the end of the year to reclaim any VAT.

A spokeswoman for umbrella body the Charity Finance Directors' Group said her organisation supported the changes HMRC had made, but it should make sure they did not increase the fear charities had of getting involved in tax recovery.

"HMRC should recognise that the real difficulty of this area lies in gathering the data and in allocating income and expenditure between business and non-business," she said.

HMRC is still considering whether to do away with any distinction between exempt and non-business activities for VAT purposes.

David Ainsworth recommends

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