- Original Poster
- #1
I work for a charity with two main charitable objectives - running training courses (at market rates) and providing counselling for local people (at significantly below market rates/cost). I'm trying to work out whether our activities would be VAT exempt, zero rated or standard rates. Currently we are not VAT registered as our income is below the threshold, but it has been increasing year on year and may soon reach that point.
The training I believe is VAT exempt. According to VAT Notice 701/30, we are a charity that does not distribute any profits, and any profits go back in to improving and running our services - thus we are an eligible body, thus our supply of training is exempt from VAT.
The counselling is a little trickier. Our model is to ask each client for a donation towards their counselling of whatever they feel they can afford, even nothing at all if they wish. On average this works out to around £12 per session. Market rates are in the region of £50-£60 per session, and our costs tend to be £21 per session (purely overheads, as our counsellors are all volunteers).
Based on 5.18.2 of VAT Notice 701/1, "Charities that provide welfare services significantly below cost, to distressed persons for the relief of their distress, may treat these supplies as non-business and outside the scope of VAT."
"‘Significantly below cost’ means subsidised by at least 15%, and the subsidy must be available to everyone. The charity must be providing the service to the distressed individual, and not a local authority." ~ VAT Notice 701/1
In general, then, our services are significantly below cost; though there might be individual cases where a client has given substantially more for a session, and that particular session would not be. Does that mean some of a client's sessions would attract VAT whereas others would be outside the scope? Say they give £40 for one session and then £5 next week...
"By ‘distressed’ we mean someone who is suffering severe mental or emotional pain, anguish or financial straits. It denotes severe, rather than mild emotional or physical discomfort." ~ VAT Notice 701/1
Many of our clients fall into this category, but others do not. Of course the goal of counselling is to relieve the distress - thus in general a client will start out distressed, and end with us after several months no longer distressed. Does this mean we need to assess clients on a case by case basis each week to judge whether they are still distressed enough not to be VATable? This seems like an awful lot of work. We do assess clients at their initial and final sessions to judge their levels of mental health, but we don't assess them at every session in between. In any case, the payments are mostly anonymised - clients just leave a donation in an unmarked envelope after a session, and very rarely ask for a receipt. What would be the best way to treat this?
According to VAT Notice 701/2, as well as the above people being outside the scope of VAT, "Schedule 9, Group 7 VATA 1994 provides that supplies of welfare services and connected goods by charities, state regulated private welfare institutions or agencies, or public bodies are exempt from VAT." It defines Welfare Services as:
"Welfare services are services which are directly connected with the:
My takeaway is that we'd need to know exactly how much donation a client gives for their session, how old they are and their level of mental health for each session before we'd be able to work out if that particular counselling session was either outside the scope of VAT (for people paying significantly below cost who were mentally distressed), VAT exempt (for distressed people paying above a certain level, elderly people and disabled people) or standard rated (for younger people who were not severely distressed at the time). Am I right? This seems like an absolute nightmare of admin.
The training I believe is VAT exempt. According to VAT Notice 701/30, we are a charity that does not distribute any profits, and any profits go back in to improving and running our services - thus we are an eligible body, thus our supply of training is exempt from VAT.
The counselling is a little trickier. Our model is to ask each client for a donation towards their counselling of whatever they feel they can afford, even nothing at all if they wish. On average this works out to around £12 per session. Market rates are in the region of £50-£60 per session, and our costs tend to be £21 per session (purely overheads, as our counsellors are all volunteers).
Based on 5.18.2 of VAT Notice 701/1, "Charities that provide welfare services significantly below cost, to distressed persons for the relief of their distress, may treat these supplies as non-business and outside the scope of VAT."
"‘Significantly below cost’ means subsidised by at least 15%, and the subsidy must be available to everyone. The charity must be providing the service to the distressed individual, and not a local authority." ~ VAT Notice 701/1
In general, then, our services are significantly below cost; though there might be individual cases where a client has given substantially more for a session, and that particular session would not be. Does that mean some of a client's sessions would attract VAT whereas others would be outside the scope? Say they give £40 for one session and then £5 next week...
"By ‘distressed’ we mean someone who is suffering severe mental or emotional pain, anguish or financial straits. It denotes severe, rather than mild emotional or physical discomfort." ~ VAT Notice 701/1
Many of our clients fall into this category, but others do not. Of course the goal of counselling is to relieve the distress - thus in general a client will start out distressed, and end with us after several months no longer distressed. Does this mean we need to assess clients on a case by case basis each week to judge whether they are still distressed enough not to be VATable? This seems like an awful lot of work. We do assess clients at their initial and final sessions to judge their levels of mental health, but we don't assess them at every session in between. In any case, the payments are mostly anonymised - clients just leave a donation in an unmarked envelope after a session, and very rarely ask for a receipt. What would be the best way to treat this?
According to VAT Notice 701/2, as well as the above people being outside the scope of VAT, "Schedule 9, Group 7 VATA 1994 provides that supplies of welfare services and connected goods by charities, state regulated private welfare institutions or agencies, or public bodies are exempt from VAT." It defines Welfare Services as:
"Welfare services are services which are directly connected with the:
- provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons"
My takeaway is that we'd need to know exactly how much donation a client gives for their session, how old they are and their level of mental health for each session before we'd be able to work out if that particular counselling session was either outside the scope of VAT (for people paying significantly below cost who were mentally distressed), VAT exempt (for distressed people paying above a certain level, elderly people and disabled people) or standard rated (for younger people who were not severely distressed at the time). Am I right? This seems like an absolute nightmare of admin.
