Ways to reduce VAT on fuel, electricity, and building works
Charities are affected by VAT in various ways. There is a detailed summary in VAT Notice 701/1. This news post has information about VAT on fuel and electricity supplies and for building works on charitably managed community halls / centres.
Fuel and electricity
Many charities should only pay VAT at 5% on their electricity and fuel. This applies if at least 60% of your usage (each fuel type is looked at separately) is for ‘charitable non-business’ purposes. If it isn’t, you can apportion your usage so the ‘charitable non-business’ supply has 5% VAT added and the rest gets the normal 20% VAT. There are also ‘de minimis thresholds’ below which your entire supply only draws VAT at 5%.
But what is ‘charitable non-business’ use? All the details are in VAT Notice 701/19, with the relevant section starting here. Sadly, hiring out your building and facilities for a fee doesn’t qualify as non-business usage – generally an activity that is being charged for will be counted as business usage, even when charities are carrying out those activities.
For more details: Action Hampshire members can email us for a booklet about this issue, and we also encourage you to respond to this consultation on charity tax issues if you think the current tax regime is unfair or confusing. It closes at 5pm on 6 July.
Charities managing building works might also be able to reduce their VAT bill. There’s a summary in section 6 of VAT Notice 701/1 and Action Hampshire members can ask us for a booklet with more details. In brief, these are all zero-rated for VAT:
- New-build village / community halls
- Charitable annexes, which means a fully self-contained extension that will be used as a community hall or similar (the nature of the existing building doesn’t matter)
- Adaptations to improve a building’s accessibility for disabled people
If building works are undertaken by a parish council they can usually reclaim the VAT paid. This is relevant in these situations:
- If your parish council is willing to place the order and make payment (without being reimbursed) then they can reclaim the VAT
- The same applies for halls / centres run by a local authority in their statutory capacity
- It also applies for halls / centres where the parish council is the sole charity trustee
For conventionally-governed halls, with a management committee of charity trustees, it might be worth considering changing your governance arrangements in order to avoid a large VAT bill. You can use the ‘Charities Act s280 power’ to go from a standard management committee to having your parish council as the sole charity trustee. The organisation is still charitable, and we can outline the pros and cons – just email us or call 01962 857358.