Member group avoiding VAT as CUK is charity

[pedals2slowly]

We want to fund an active travel feasibility study (£15K)
As a CUK member group can we avoid paying VAT on that, being part of CUK, a charity?

[gaz]

.

[pedals2slowly]

Yes that makes sense.
I'll see if HQ will help us out .......

[AndyK]

Just to add: it's a common misconception that charities don't pay VAT. In the vast majority of cases they do. There is a very small list of goods and services that charities can pay reduced or zero rate VAT on:
https://www.gov.uk/vat-charities/what-q ... for-relief
Commissioning consultancy work is not on that list.

The subsidiary companies were set up long before CTC became a charity. As Gaz says, their purpose was to keep member groups below the VAT thresholds for businesses.

Where being a charity could come in useful is that the company you're buying from could choose to give you a discounted rate. They can then treat that discount as charitable giving for tax purposes - effectively they're donating some (not all) of their employees' time for free. (This is nothing to do with VAT - it's about corporation tax.) However that would only work in this case if Cycling UK centrally commissioned the work, as they are the charity and the consultancy was prepared to give them a special rate. Us member groups are in subsidiary companies that just happen to be wholly-owned by a charity, we're not charities ourselves. So it's still worth talking to HQ, just not about the VAT.

[PH]

Just to add: it's a common misconception that charities don't pay VAT. In the vast majority of cases they do.

While this is certainly correct, I don't think it's the whole picture.
For a VAT registered business, the VAT paid on the study pedals2slowly is proposing would be offset against their VAT liability. In effect, although they would pay it, it would be returned either as a reduced liability or rebate. Admittedly I don't know anything about charity accounting and if/how it differs. I'm guessing, the net cost for any VAT registered organisation would be less the VAT.

[AndyK]

Just to add: it's a common misconception that charities don't pay VAT. In the vast majority of cases they do.

While this is certainly correct, I don't think it's the whole picture.
For a VAT registered business, the VAT paid on the study pedals2slowly is proposing would be offset against their VAT liability. In effect, although they would pay it, it would be returned either as a reduced liability or rebate. Admittedly I don't know anything about charity accounting and if/how it differs. I'm guessing, the net cost for any VAT registered organisation would be less the VAT.

That's right, basically. If you're a VAT-registered business, you pay "input VAT" to your supplier. You then collect "output VAT" from your customers when you sell stuff to them. You deduct the input VAT (tax you've already paid) from the output VAT (tax money you've collected from others) and the difference is what you have to hand over to HMRC.

The only difference for a VAT-registered charity is that there is a small number of things that it can buy from a supplier and pay a lower rate of input VAT on them than a commercial business would - in some cases, a zero rate. Consultancy is not one of those things.

If a business or charity is below the VAT threshold and isn't VAT registered, they have to pay VAT to their suppliers where it's due, but they can't claim that back in any way. Essentially they're just the same as any individual punter buying stuff. Again there is no special exemption for charities.

[pedals2slowly]

Excellent replies and nobody hijacking the thread!