If you are looking for a recent change that clarifies the view of a business’s right to claim donations and sponsorships by HMRC. We have got you covered with the effects of VAT on Sponsorship and donation payments.
The rules of VAT only allow reclaiming a business, when the VAT is paid on such purchases that are linked with VATable sales. In simple words, this means that it is a must for a business to be VAT registered. Also, the expenditures on purchases (on which VAT is paid) should have a connection with the business activity clearly.
In this blog, we will focus on the following:
- Donation and Input Tax
- Ins and Outs – VAT
- VAT On Sponsorship
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Donations And Input Tax:
If we take the example of a business that offers equipment to a local sports club. Also, there are no limits if they require to pay with money or other considerations. Now you can reclaim VAT that was paid at the time of purchase. In case the equipment offered by your business was intended for sponsorship purposes. Or even if i is to promote your business name. It will be considered out of the VAT scope. VAT on sponsorship will not be entertained.
Ins and Outs – VAT:
The more value benefits a business receives like advertising on the billboards. If the promotion of your business is happening through the events at the club. This will be considered as the supply of products or goods. VAT on sponsorship will be claimed for the money spent on providing products for such events.
Moreover, such events at clubs make VATable supply to the offered services or products by your business. They can’t charge VAT until they are VAT registered. In case you offer your products or services to a charity, you can account for their value for smooth processing.
Here, we can take a practical scenario in which a company pays 3000 pounds as a charity (this includes 500 pounds VAT). This charity is considered to be local and it is not VAT registered. There is no return for the goods or services as well. The plan is to reclaim the VAT which is 500 pounds for the gifted products as charity. As these were charged on the purchased goods.
Such arrangements are VAT neutral and this must be informed to HMRC very clearly.
For more information on charities, gift aids, and other taxes, reach out to our professionals, and forget to worry now!
VAT On Sponsorship:
If advertising services are being entertained by the charity, the situation is totally different. This has worth but it is not equal to the value of supplied goods from your business. Such situations and arrangements m just be treated as a part of VATable supply or donations.
According to the changed policies by HMRC in May 2019, your VAT cost can be reduced if you separate the value of every element. A saving tip is that you should supply goods or make payments partly as sponsorship and partly as charity. Former will be liable for VAT. Now, the question that arises here is what is the separate arrangement?
If the documents clearly explain which part of the payment is for the donation purpose and which part is for sponsorship and you are not up for any VAT on gift aids or donations. This means separate arrangements. This is also to be ensured that the donations have clear separate records than that of the sponsorship record to avoid any confusion in the processing later.
Furthermore, when you provide your products to the charity or make such payments but there are also some considerations in return. However, that is not equal to the value of your services or payment. Such payments will be considered as VAT-free donations. It is suggested to pay for your services and for the donations separately to avoid chaos and enjoy the smooth processing of VAT on sponsorship.
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To sum up the discussion, we can say that VAT rules do allow to reclaim VAT on sponsorship and donations. It is to be ensured that while trying to reach the goal, you must not forget to follow the professional way to follow. We hope this blog helped to develop a better understanding of VAT on sponsorship and donations.