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An Unfortunate Business

Philippa Booth of the Charity Tax Team at Buzzacott Accountants discusses the concept of business and non-business activity in the context of VAT and the costs that can result
The normal estimate of irrecoverable input VAT to the charity sector is per the Charities' Tax Reform Group (CTRG) £500 million a year. However this is not the only way a VAT cost can arise. An unplanned liability for output tax if the funding agreement is silent on the matter of VAT or worse contains the dreaded words 'inclusive of VAT' can cause nearly 15% of expected income to be lost to the state. If the majority of attributable costs are VAT-free salaries or a small proportion of overheads input tax recovery will not be sufficient compensation.

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