 Charities could save over £75m from reduction in VAT
25 November 2008: The 2.5% reduction in VAT announced by the Chancellor in his Pre-Budget Report yesterday is very welcome news for charities and could save them over £75m, says Debbie Jennings, VAT Director at PKF Accountants & business advisers.
 |
 | Debbie explains, "A figure of around £500m irrecoverable VAT is suffered by charities each year, so the reduction in the standard rate of VAT by 2.5% to 15% with effect from 1 December is definitely good news, especially in the current tough economic climate where charities are facing increasing financial pressures.” |
The opportunity is available for 13 months to 1 January 2010, whereupon the standard rate of VAT will return to 17.5%. Zero rated supplies, supplies subject to the reduced rate of VAT at 5% and exempt supplies are not affected by this change.
Debbie continued, “On a practical level, charities face a number of challenges in accommodating the reduction in the rate and maximising the opportunities it offers. VAT accounting systems and VAT recovery calculations will need to be changed in order to reflect the lower rate. The new "VAT fraction" is 3/23 rather than 7/47 and will need to be used when charities are calculating the amount of standard rate VAT within a gross expenditure figure.
“Charities should also monitor the purchase invoices which they receive after the 1 December to make sure that their suppliers are aware of the new lower rate and the date from which it comes into effect.”
“There are also opportunities for charities that pay VAT on supplies which span the VAT rate change on 1 December. Examples would be where they pay rent in advance before 1 December but which at least in part relates to a period after 1 December. In these cases the supplier has the option to apply the 15% rate to the extent that the supply actually takes place on or after 1 December. The charity needs to identify expenditure where this option could apply and persuade its supplier to charge VAT at the revised rate.”
Debbie concluded, “Every opportunity should be taken to maximise this new reduced rate and charities should speak to their advisers if they are unclear."
- Ends-
For further information, or to speak to a tax expert, please contact:
Jane Murray, PR Executive, 020 7065 0135, jane.murray@uk.pkf.com
For general enquiries please contact our switchboard on 0207 065 0000
Notes to Editors:
- PKF is a leading firm of accountants and business advisers with more than 1,800 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
- PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
- PKF (UK) LLP is a member of PKF International which is an association of legally independent firms with more than 14,650 people operating in 119 countries around the world.
|