VAT Compensation Scheme Update

The VAT Compensation Scheme commenced from 1 January 2018 with a three-year pilot period to 31 December 2020.

Claims for 2020 are currently being submitted, the third year that the scheme is in operation and as per the legislation the scheme is now being reviewed. When the scheme was initially launched, it was with a degree of uncertainty, would charities apply in significant numbers, was €5m the right amount, would it be accessible enough?

The results speak for themselves, the scheme has been significantly oversubscribed in both years and the €5m cap is insufficient in meeting the demand.

Charities institute Ireland and the Wheel have entered a period of consultation with Revenue and the Department of Finance to review how the scheme has operated over the last few years and how it can be improved and enhanced. Our goal is to ensure that firstly the scheme is retained and that the €5m cap is increased substantially, therefore the 2020 return is more important than ever.

While the scheme has only been in operation for a few years, the sector campaigned for a VAT reclaim initiative for over 20 years. Now that we have it, we are very anxious that we hold onto this important support for the sector.

As with any new initiative, it can take a little bit of time to bed in and on behalf of all our charity members, Cii and The Wheel would like to extend our sincere thanks and appreciation to the Charities team in Revenue who have been so supportive in helping our charities navigate the scheme in the last couple of years.

One critical factor for the Department of Finance in considering renewal of the scheme is to ensure that the scheme isn’t overly burdensome from an administrative perspective for the team in Revenue. While the majority of charities are having no issue with the operation of the scheme, some issues appear to be recurring and we hope that we can help charities to overcome these issues to make sure that their claim is correct.

Calculation of Qualifying Income

As you are aware, the scheme allows charities to claim a refund of a proportion of their eligible VAT costs, based on their level of non-public funding. There seems to be an issue in relation to qualifying income and Revenue continue to see charities incorrectly including public funding in their calculation of qualifying income.

We therefore ask you to please ensure that you or indeed your financial advisor takes care not to include public funding as qualifying income. It creates a backlog of work for Revenue and can delay the payment process. Revenue have developed this very helpful guidance document which is regularly updated. The section that is most relevant to ensuring that your claim is correct is under section 5.1 which provides a comprehensive note on qualifying income

Claims Deadline

Another point to highlight is the importance of submitting your claims on time. Revenue would like charities to submit their VAT Compensation claims well in advance of 30 June deadline – in 2020 the claim deadline was extended to 31 August but there will not be an extension this year. Claims can only be submitted between 1 January and 30 June each year.

The 30 June date is not a target and given the fact that many charities have left their submission to the last minute, this may be a factor in the occurrence of errors that Revenue have reported. Revenue also highlighted that if a charity has an issue with ROS or staff are busy during that last week, it can result in claims not being successfully uploaded So please submit your claims well ahead of the deadline.

Finally, we also understand that for some charities, there is a cost benefit analysis taking place at the moment as charities only received approximately 12% of their claim last year and 13% the previous year. The sector fought for many years for this initiative and we will do our utmost to raise the €5m fund to make it a more attractive proposition for the charity sector so we would encourage as many of you to apply and demonstrate to the Department of Finance the need and demand for the scheme.

We have developed this very practical template to help charities calculate their claim right first time and we would encourage you to use and indeed share this resource with your charity contacts.