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VAT ON IRISH CHARITIES

VAT ON IRISH CHARITIES . Key findings of the VAT Research Project Irish Charities Tax Research Ltd Sheila Nordon. Background. VAT burden highlighted by charities for more than 12 years

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VAT ON IRISH CHARITIES

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  1. VAT ON IRISH CHARITIES Key findings of the VAT Research Project Irish Charities Tax Research Ltd Sheila Nordon

  2. Background • VAT burden highlighted by charities for more than 12 years • Charities treated as “exempt” from VAT – because they don’t charge it they cannot reclaim the VAT they pay on goods & services • Many estimates put forward – limited surveys or extrapolations from general reports • Irish Charities Tax Research commissioned an independent study by tax experts Ernst & Young – first detailed survey on how much VAT charities pay?

  3. Research Questions • How much do Irish charities pay out in irrecoverable VAT each year? • How much of the money that pays the VAT bill comes from fundraised income and how much from government or other public bodies? • What, if anything, can be done about the problem at national level?

  4. Research Sample • Organisations which meet Revenue requirements for tax exemption (CHY No.) • ICTRG members claim to represent the major proportion of the total spend of the sector – therefore all invited to participate • Random sample drawn from the Revenue database of tax exempt bodies • Sample period 1 Jan. 2001 to 31 Dec. 2001 or financial year closest • Total Sample 219 charities – 93 ICTRG members and 126 random sample

  5. The total expenditure of sampled charities in 2001 was over €500m ICTRG members accounted for 83.5% of the total spend Key Findings 1

  6. Key Findings 2 • Over €18m was paid out on VAT • Only €300k of this eligible for a refund • ICTRG members account for 76.2% of the total VAT paid

  7. Key Findings 3 • 52% of the total VAT incurred was funded by private means – fundraising, donations, sponsorship, commercial activities etc. • 47% funded directly or indirectly by government • 1% unknown

  8. Key Findings 4 Of the €18m spent on VAT: • Over €7m on general overheads • Almost €5m on capital expenditure • €2m on fundraising and promotional costs • €1.5m on consumables • €1m on professional fees • €1.5m on other organisation costs

  9. What can be done about it? • The Minister of Finance is obliged to collect VAT but once collected it can be disbursed as he deems appropriate without EU clearance • Section 20 VAT Act 1972 gives the Minister the necessary power to relieve charities of their VAT by Ministerial Order • Advantage – relief goes directly to the charity and control remains with the Revenue Commissioners

  10. Conclusion • Report demonstrates that VAT is a significant burden on Irish Charities (sample = €18m in 2001) • The VAT burden can be relieved by way of a Ministerial Order under Irish VAT law without contravening EU law • The actual cost to the Exchequer is 52% of the VAT bill since the remainder comes from public funding (sample = €9.4m) • The advantage of a VAT refund mechanism is that control remains with the Revenue Commissioners as to what organisations qualify for refunds

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