Grants & Donations
Grants and donations are not generally consideration for a supply and therefore treated as outside the scope of VAT. This is on the basis that income is freely given with no strings attached and hence treated by the charity as a gift.
However, it is very important that this income has to be unconditional;
-Does the donor receive anything in return for payment?
Often funding is given subject to the provisions of a contract or agreement, the terms of which may be indicative of the nature of the funding.
However, it is important to note that many such contracts or agreements are drawn up purely to make sure that the funds are used for the intended purpose. It is important not to confuse ‘good housekeeping’ with supplies of goods or services. Attaching conditions or safeguards to the payment of grants to make sure that the money is spent correctly does not turn it into consideration for a supply. Please remember that a contract or agreement can be oral as well as written.
Additionally, certain ‘benefits’ to the funder, for example copies of reports, may arise as a result of necessary safeguards to make sure the money is spent correctly and that the end product is put to proper use. Usually where these are incidental to the primary purpose of the project and are minimal in relation to the amount of funding, the funding is not seen as consideration for a supply.
Sponsorship usually results in the charity receiving benefits such as advertising (including logo’s), publicity or use of facilities. This should be treated as a VATable supply hence standard rated.
Events clearly organised and promoted primarily to raise money for the benefit of the charity are exempt from VAT. This exemption covers admission fees for the event and other income generated such as sale of food etc.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.