VAT increase: An additional costs for charities

The increase in the VAT rate by 2.5% from 17.5% to 20% from 4 January 2011, will have serious implications to costs for Charities who are unable to reclaim the VAT. It will mean that the charity sector will play a significant role in contributing to the Treasury, as irrecoverable VAT is expected to rise by £150 million.

There are some action points to note:

1. Ensure any applicable reliefs are taken advantage of.
2. If significant expenditure is planned, consider bringing it forward to before 4 January 2011. This could save £25,000 on every £1 million spent.
3. Review the charity’s vat position to ensure that the most appropriate partial exemption methods and non-business apportionment is in place.
4. Review any land and property transactions. These can be high value and some reliefs are available. Also considering vat planning to improve the vat position of a property-owning charity.

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