Grants v Contracts

This remains an area of VAT risk for many charities. Our very recent experience with HMRC Policy Teams on specific arrangements for a client and again indicated a lack of consistency on the ground in VAT liability determination of whether an income stream is to be regarded as a non-business Grant or a business supply of services.

The Charity Tax Group have been working centrally with HMRC to try to ensure clearer VAT guidance is made available to the sector and we can report that HMRC are updating their Internal VAT Manuals on the issues of Grants and Contracts. You can find details of this central guidance HERE

Additional concern in the area of Grants is coming from changes we understand to have occurred in Procurement rules which impact on the way in which public bodies regard their arrangement with the third sector. It should be noted that whatever Procurement rules state HMRC will remain interested in the “substance” of arrangements over the “form”.  It will remain an area for the sector to pay attention to for some time yet.