VAT Change Affecting Charities

A recent development could be of interest to charities and their building suppliers.

HMRC have recently announced proposals to change the VAT rules to remove the generous reduced rating (5% VAT rate) for “energy saving materials” installed in buildings used for a “relevant charitable purpose”. Those installed in residential accommodation don’t appear to be affected, thankfully, so will continue to benefit from the 5% rate, however charities will face higher VAT costs in future on such items.  The changes are being driven by the EU and are based on a VAT technicality, effectively forcing the Government’s hand. 

Who will be affected:

a) Charities, who will have to pay 15% extra VAT (i.e. the full 20%) in future.  They will generally not be able to reclaim this VAT; and
b) Suppliers of these goods to charities who will lose the business or margins as a result.

The change is planned for 1 August 2013:

a) The good news is there is plenty of time for charities to consider purchases and suppliers to prepare costs & margins for the change.  Acceleration of any proposed building works may be a worthwhile consideration at this stage.

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