While charities in Ireland can qualify for a broad range of tax exemptions, they have no general exemption from VAT. This means that a charity is usually not able to reclaim the VAT it is charged which in turn reduces the funds available to it to carry out its charitable activities.
In an effort to address this problem the VAT Compensation Scheme (the "Scheme") was announced back in October 2017 as part of Budget 2018. It followed a lengthy consultation involving the Revenue Commissioners, the Charities Institute Ireland and the Department of Finance. In December 2018 the Revenue Commissioners published information and guidance for charitable bodies in respect of the operation of the Scheme.
In this note we look at some of the main issues which a charitable organisation looking to avail of the Scheme will need to consider.
Who Can Make a Claim?
To be eligible to make a claim under the Scheme a charity must be on the register of charitable organisations, which is maintained by the Charities Regulatory Authority, and have a CHY number, which are issued by the Revenue Commissioners, both at the date of the claim and at the time the expenditure was incurred.
The charity must also have incurred VAT on "qualifying expenditure" in the relevant year.
When can a Claim be made?
Claims are confined to a single calendar year and can only be made after the end of that year. A claim for 2018 can only therefore be made in 2019 and it must be made no later than 30 June in that year.
Also, the Scheme operates on a cash basis so only VAT paid in the year in question can be included in a claim. So goods or services invoiced in 2019 but not paid for until 2020 must be included in the claim for 2020. The Scheme is scheduled to last for 3 years.
The total annual amount available to pay out on foot of the Scheme is capped at 5 million euro. The pay-out calculation, we are told, will take place just once annually and due to various factors involved in the repayment process, we are advised that it will not be possible to recalculate the payments or accept late applications.
If the total value of eligible claims exceeds the 5 million euro cap then the payments will be administered on a pro rata basis.
Calculating the Claim
To be able to make a claim under the Scheme a charity must have paid VAT on goods or services which were used by the charity only for its charitable purpose (i.e. qualifying expenditure).
If the charity has privately funded income...