Charity VAT Update: Community Asset Transfers = CAT & VAT

23rd January 2015

Community Asset Transfers = CAT & VAT

The Centurion VAT team has been supporting a number of local authorities, and the subsequent Trust bodies established, in addressing the VAT issues that will directly impact on the feasibility of transferring out council run Leisure and Cultural services to separate Trust management.

So when I saw Empowers Blog piece on the next round of CAT funding announced from the start of 2015 it caught my eye: Read here

The transfer projects we’ve worked on cover quite wide ranging VAT impact issues: sporting services provided by a local authority for example are excluded from the VAT Exemption treatment so a council charges VAT on this aspect. The same supply made by a separate Trust body with charitable status would attract the VAT exemption treatment. “So what I hear you say” – well the basic VAT rules will not allow someone to recover the VAT they have incurred on costs which are then used to support an activity which generates VAT Exempt income - not good news for budgets!

A charitable body taking on a leisure centre/swimming pool etc will walk straight into a situation where it will be unable to recover VAT on the costs of upgrading or running the sporting facility whereas that VAT on costs WOULD have been recoverable in the hands of the council when it ran the facility.

There is a mechanism whereby an entity other than a council, that generates VAT Exempt income, can potentially recover the VAT on costs it incurs in making that income but only if it can prove that the VAT on costs is under £7500 a year and less than 50% of all its business related VAT on costs in that year. Then what if the Trust plans a café in the centre as well as the leisure services? The Café income will generated Taxable supplies for VAT purpose which in themselves will allow VAT recovery on associated costs – so we need to work out what VAT on costs relates to what type of income.

We’ve also had to consider:

  • The VAT treatment of the transfer in itself – should the council charge VAT on anything?
  • What capital expenditure plans would the Trust have to take on board to update any centre it takes over.
  • Supplies between the two parties.
  • The partial exemption method needed by the new Trust.
  • New income areas created by the Trust and their VAT impact.
  • My thoughts on hearing of the new round of Community Asset Transfer funding was then very much along the lines of how could a smaller community based group cope with such VAT management issues! Hopefully with any council having a vested interest in the long term success of a community project such considerations could be addressed at the feasibility stage of the project.
  • Certainly any consultant supporting a group with that feasibility review needs to get VAT onto the agenda early before funding applications are put together to help them establish the true costs of taking on and running the project long term.
  • There are a range of VAT notices available on HMRC.GOV.UK which will cover the basic VAT liabilities of leisure and cultural services which will provide some basic background to VAT treatment of supplies in these areas.
  • Centurion has a BASIC VAT training event running on 4th Feb at Pontypool Leisure Centre specifically for Leisure Services teams: See here for more information.
  • But we’re always happy to hear from consultants working with community groups or council teams debating such transfers to establish the aspects where VAT will be an issue for their particular project.
  • As ever give your usual VAT contact in the Centurion Team a call on 01633 415390/ 01179200135 or drop us a note on emailus@centurionvat.com.
  • For more information visit www.centurionvat.com
  • Twitter: @centuriononvat
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