20 March 2017
VAT is a complicated tax that charities often overlook. Indeed there is sometimes a misconception that charities do not have to worry about VAT.
A couple of recent cases with our clients highlight just how easily a charity's VAT affairs can go astray, with potentially significant consequences.
In the first example our year end audit identified a problem within the VAT control account. Further inspection revealed that a number of errors had resulted in the charity overpaying in excess of £10k VAT to HM Revenue & Customs. It soon became clear that the failure in internal processes which had led to the problem had continued post year end, and that further, similar, errors had compounded the original problem. The result? A £40k claim to HMRC to recover the overpaid VAT. Now this charity's VAT affairs were less than straight forward, but the charity is not particularly large and the amounts involved are highly material in relation to annual income. At least the £40k was in our client's favour!
The second example relates to a charity client that has seen fate conspire against it to some extent. A change in finance manager was quickly followed by a systems failure during the migration of data to a new accounting package, and these two events together had resulted in various VAT errors. Reporting these to HM Revenue & Customs has, almost inevitably, triggered a VAT inspection. We've been able to support our client through this process; however this has only gone some way to relieving the stress that arises in such scenarios.
Unlike many charities these two clients are VAT registered due to the nature of their affairs and activities. Nevertheless these two cases do highlight how easily something can go wrong where VAT is concerned. Any charities which do have slightly more complex affairs sometimes find it useful to commission an independent VAT review of their systems and processes.
Our clients regularly ask us questions about VAT. We've compiled a list of the most commons ones which can be viewed here.
If you have any questions or concerns about VAT, then please talk to your nearest UHY charity or VAT specialist.
