What is the VAT Compensation Scheme?

What is the VAT Compensation Scheme?

The VAT Compensation scheme was introduced in 2018 by the government with an aim to 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.

There is currently a €5M cap on the scheme with a review to be carried out after three years. Claims are therefore paid out on a pro-rata basis. Revenue confirmed that claims amounting to almost €40m were made under the scheme for 2018 with pay-outs issued in late October 2019. Each charity received approximately 13% of the value of their claim by way of VAT refund.

Charities Institute Ireland campaigned for this program and we are delighted with the response from the sector and hope to see the cap raised in the future. Cii will continue to work with our members, Revenue and the Department of Finance on tax policy which is fair and equitable for all stakeholders.
 

Who can make a claim from the VAT Compensation Scheme?

To make a claim from the scheme an organisation must be registered with the Charities Regulatory Authority and be registered with Revenue and hold a charitable tax exemption (CHY) under section 207 Taxes Consolidation Act (TCA) 1997.
 

How do I calculate my claim for the VAT Compensation Scheme?

Note 20/07/20: Revenue has indicated it is still receiving submissions which are including public funding in their total. Please note that public funding cannot be included. Charities are entitled to claim a refund of a proportion of their VAT costs based on their level of non-public funding.

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Charities must first calculate their ‘Qualifying Income’. This being the proportion of a charity’s income that is privately funded, i.e. excludes publicly funded income. (More details in Revenue’s Guiding Manual). It then must also calculate its ‘Qualifying Expenditure’; this expenditure must have been for goods or services used by the charity for its charitable purpose (Guiding Manual). The VAT paid on this ‘Qualifying Expenditure’ is the ‘Qualifying Tax’.

To calculate a claim you can then use the following formula:

“qualifying tax” X (“qualifying income”/” total income”)
 

How do I make a claim from the VAT Compensation Scheme?

Claims for VAT compensation must be submitted through e-Repayments on Revenue’s Online System (ROS). Charities must be registered for ROS to submit a claim. Claims can be made between January 1st and June 30th for claims relating to the previous calendar year. Claims submitted after this date will not be accepted. The minimum claim is €500. Pay-outs are expected in October.

For more information visit the Revenue website.

Any questions can be directed to Revenue’s Charities and Sports Exemptions Unit. Telephone: 01 738 3680.