A team from the mid-tier firm got the repayment following a Customs ruling that the society’s 380 branches were to be treated as part of the main charity. This required it to retrospectively register for VAT from 1 January 1978.
Charities director Stephen Burgess said: ‘New legislation allowing reversal of exemption on charity events if commercial organisers claim unfair competition is one example where charities might get caught out. This will make it even more important to get good advice. A refund of £2.2m for the MS Society is a recent example.’
Having been required to register for VAT, the charity decided to investigate the area over whether it could achieve a ‘significant recovery’ of the tax.
One advantage charities have if they are not currently VAT registered is that the statutory three year cap on retrospective registration does not apply where the taxable income has exceeded the compulsory registration limit.
This is almost certain to be the case if a charity has shop or other activity generating zero rated income.
The news will delight charity finance directors disappointed at the absence of any compensation for the £450m burden of irrecoverable VAT in the recent government review of charity taxation.
‘With major VAT reforms rule out of court, it is now down to charities to make the most of what they have got. That means dusting off some of the old avoidance schemes and being creative about new ones. But it will not be easy with Customs seeking to tighten up on some of the rules and threatening to recharge VAT in some cases,’ Burgess added.
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