With the need for charity work higher than ever during lockdown, the VAT compensation scheme is of great value to the sector

Liz Hughes is CEO of Charities Institute Ireland

The VAT compensation scheme was introduced in 2018 by the government with the aim of reducing the VAT burden on charities. Charities are entitled to claim a refund of a proportion of their VAT costs based on their level of non-public funding. Claims can be submitted between 1 January and 30 June each year for VAT paid on expenditure in the previous calendar year. The scheme is due for review after an initial three years in operation.

Charity representative group Charities Institute Ireland (Cii) is encouraging charities to engage with the scheme once more to demonstrate the importance of this financial support to the sector. The scheme has been significantly oversubscribed since it began. In 2019, Revenue reported that 1,100 claims amounting to almost €40m were made under the scheme, which is capped at €5m and pays out claims on a pro rata basis, while 2020 saw 900 claims amounting to €49m.

There is clearly substantial demand for the scheme, and Cii, together with our sector partners, will campaign to have the scheme renewed as well as call for a significant raising of the €5m cap. The 2020 return is accordingly more important than ever.

Financial advisers to the sector are urged to take care not to include public funding in applications to the scheme

Qualifying income

While the majority of charities have no difficulty with the operation of the scheme, there still seems to be an issue for some about qualifying income, with Revenue continuing to see charities including public funding in their applications. Cii is urging financial advisers to the sector to take care not to include public funding in applications to the scheme, as doing so creates a backlog of work for Revenue and can delay the payment process.

Revenue has developed a very helpful guidance document, which is regularly updated, to help in the application process. The part that is most relevant to ensuring a claim is right first time is section 5.1, which comprehensively covers qualifying income.

Another point to highlight is the importance of submitting claims on time. Revenue would like charities to submit their VAT compensation claims well in advance of the 30 June deadline. In 2020 the claim deadline was extended to 31 August, but there will be no extension this year. Claims can be submitted only between 1 January and 30 June each year.

The 30 June date is a cut-off point, not a target. The tendency of many charities to leave their submission to the last minute may be a factor in the high incidence of errors reported by Revenue. Revenue has also stressed that if a charity has an issue with ROS or its staff are busy during that last week, claims may not be successfully uploaded in time, adding urgency to the need to submit claims well ahead of the deadline.

For more information

You can find out more about the VAT compensation scheme on the Revenue website and on the Cii website