VAT

The following does not apply within Jersey, Guernsey or to British Scouting Overseas, but the Isle of Man has VAT legislation that parallels UK legislation.

General

General charities – which includes scout groups/districts/Counties/Areas/And Scottish regions – do not have widespread exemption from VAT on their expenditure. The circumstances in which you can claim back any VAT charged to your unit are very limited. For example, when a group purchases a tent it cannot recover any VAT charged

Reliefs and exemptions

Charities do benefit from a number of specific VAT reliefs and exemptions.

Most of the income a typical scout group receives is either:
•    ‘Exempt’ from VAT under exemptions which apply to membership organisations or not-for-profit education providers; or
•    ‘Non-business’ and therefore outside the scope of VAT. That includes subscriptions and donations. See VAT Notice 701/1 section 4 for information on the meaning of the word ‘business’ in the context of VAT.

Registration

You do not charge VAT unless you are registered. It is compulsory to register for VAT if your income after excluding everything which is exempt or outside the scope of VAT exceeds £73,000 (from 1 April 2011). Hence most Scout units are not compelled to register and will not need to learn the complexities of VAT.

If your income is less than the compulsory registration limit – £73,000 from 1 April 2011 – and you have 'business' activities you might benefit from registering voluntarily for VAT. Because of the complexity of the system, you will need to have a fairly precise knowledge of your future income and expenditure and perform careful calculations to know whether you would benefit. In our experience most scout units would not benefit. Registering also commits you to charging VAT on your non-exempt business income, and since most of the ‘customers’ are unlikely to recover VAT your charges are effectively higher.

Recovery

Registering for VAT does not mean that you can recover all the VAT you pay on your expenses. Because much of your income is exempt from VAT your ability to recover VAT is severely restricted. Complex rules apply which can be found in HMRC VAT Notice 706.

For example, camping equipment supplied by the group for use by members represents either a non-business or exempt supply by that group, and as a result the group cannot recover any VAT on the purchase of that equipment. If the group hires out that equipment to a non-scout organisation then if the group has registered for VAT it would need to charge VAT on the hire fees. It could then recover VAT on the equipment cost, but only a percentage of that VAT. That percentage is normally calculated by dividing the value of income of all types on which VAT is due by the total of all income, excluding non-business income. This percentage will normally be small.

Buildings

New buildings acquired by scout charities may be zero-rated for VAT (ie no VAT is added to the cost) provided certain detailed conditions apply. This is explained more fully in VAT on Scout buildings.

Summary

Although most aspects of VAT can be outlined simply there are usually many exceptions or detailed conditions which must be met for a particular relief to apply.

HMRC VAT Notice 701/1 outlines how VAT affects charities. Scout groups will mostly be interested in Section 6.1 which deals with reliefs relevant to expenditure. Section 5 deals with VAT on different types of income, but remember that you do not charge VAT at all unless you are registered.