VAT Compensation Scheme
What you need to calculate the claim amount?
The claim amount is the amount a charity can claim. It is calculated using a number of factors relating to qualifying income and qualifying expenditure.
The following paragraphs describe how to calculate the qualifying income, qualifying expenditure and qualifying tax. You will need these figures to calculate the claim amount.
Income and expenditure
Any reference in these paragraphs to income received or expenditure paid is to actual monies received and paid out in the calendar year to which the claim relates.
The scheme operates on a cash basis.
- Example 1
Charity A orders goods and services in 2018 but does not pay for them until 2019. These goods and services cannot be included in the claim for 2018 but will have to be claimed in 2020 for 2019.
What is qualifying income?
The proportion of a charity’s income that is privately funded is known as qualifying income. This excludes publicly funded income.
The charity must first calculate the total income they receive from all sources during the year.
- Example 2
A charity receives:
|Donations from a flag day
|Total income for that year
To calculate qualifying income, a charity should deduct certain funding from its total income for the year to which the claim relates.
You must deduct the following:
- educational fees received if the charity is a school, university, institute of technology or educational establishment
- income from shops, restaurants and retail outlets
- refunds or reliefs received under any other scheme or legislation administered by Revenue
- funding received directly or indirectly from another qualifying charity.
You must also deduct funding, refunds, and reliefs received directly or indirectly from:
- the State, a public body, State bodies, bodies established by statute
- bodies which received that funding directly or indirectly from the State
- the European Union or European Union bodies or from bodies which received that funding directly or indirectly from the European Union
- the public funding of any Member State of the European Union
- a body which received that funding directly or indirectly from the public funding of a Member State of the European Union
- international organisations which received that funding directly or indirectly from the public funding of any country
- a body which received the funds from an international organisation which previously received that funding directly or indirectly from the public funding of any country.
- Example 3
In example 2 the total income was €37,000 but the charity received €2,000 by way of a Government grant. This is deducted from total income. Qualifying income for the year to which the claim relates is €35,000.
What is qualifying expenditure?
Qualifying expenditure is expenditure in respect of which a claim may be sought under this scheme. A number of conditions apply to the calculation of qualifying expenditure.
A charity may seek compensation in respect of VAT which was paid in the State on certain expenditure. That expenditure must have been for goods or services which were used by the charity solely for its charitable purpose.
If the charity used only part of the good or service for their charitable purpose they must calculate that proportion. The part not used for their charitable purpose is not eligible for this scheme.
A charity cannot include any amount that they are entitled to receive under any other scheme or legislation administered by Revenue. For example:
- any kind of relief
- Example 4
A charity has total expenditure of €24,600 in the claim year.
Of that expenditure, €2,460 was for non-charitable purposes.
The qualifying expenditure is €22,140.
What is qualifying tax?
Qualifying tax means the VAT that has been paid by the charity on the qualifying expenditure.
As per example 4 the qualifying expenditure was €22,140. This included VAT paid in the amount of €4,140. The qualifying tax is €4,140.
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