HMRC rules dictate that an organisation can avoid VAT on a purchase or repair of equipment in either of these two circumstances:
– It is an eligible body which is paying with charitable or donated funds.
– The goods are purchased in order to donate them to an eligible body.
An eligible body includes health bodies, not for profit research institutions and various other charitable organisations.
Other charitable groups, which are not classified as eligible bodies may not be able to rely on zero VAT ratings, but they may be entitled to a reduced rate of VAT.
What goods qualify for zero rating tax schemes?
A number of goods can be purchased VAT free if they are to be used by an eligible body. Products which are to be used in the medical field are usually looked upon favourably. Generally all goods that assist in medical or veterinary research, training diagnosis and treatment will qualify. These include laboratory equipment, ambulances or parts and accessories for use in ambulances, rescue equipment, resuscitation models for use in first aid training, facilities for disabled people etc.
In addition, the repair, maintenance or installation will be zero rated if the following two conditions are met:
– Equipment is owned or possessed by an eligible body
– The repair, maintenance or installation is paid out of charitable or donated funds
In order to obtain a VAT free rating, organisations need to provide suppliers with a written eligibility declaration, confirming that the conditions of relief have been met. Suppliers will also require proof of charitable status.
It must be stressed that the zero rating only applies to goods bought for or by eligible bodies. Goods bought for other charities, which do not qualify will result in the requirement to pay VAT, even if that charity may be entitled to reduced VAT payments itself.
How does this affect my business or charitable organisation?
From a tax point of view, charitable donations have always been looked upon kindly by HMRC. The purchase of medical equipment by a business for a charity would appear to be a particularly astute form of donation. It has the potential to help a significant number of people, and is VAT free provided it is donated to the correct organisation.
For charities, particularly those operating in the medical area, it is advisable that they become classified as ‘eligible bodies’ for the purpose of the zero rated scheme, as they are likely to receive significantly more donations as a result. Furthermore the donations which they do receive will undoubtedly go a lot further given the discounted purchase price.
The rules regarding eligibility are quite complex and we would advise that your individual circumstances are reviewed before making any supplies to which the above may relate.
For specialist advice on the VAT treatment of equipment purchases made for or by charitable organisations, contact our VAT expert, Robert Twydle