VAT Compensation Scheme for charities

What is total income and qualifying income?

Total income

Total income is all income received by a qualifying charity in the year in which the claim relates, excluding:

• amounts collected for and transferred directly to another charity
• any repayable loans to a charity
• any public funding received, directly or indirectly, that is simply for onward transfer to another body or individual.

In calculating Total Income where funds have been collected by one qualifying charity for another qualifying charity, the:

• receiving charity can only include those funds in the claim calculation
• collecting charity cannot include those funds in the calculation of its Total Income or Qualifying Income.

Where a charity is transferring funds onwards, the funds are not reflected as income in the financial statements of the charity. The charity’s role is simply to manage and transfer the funds onwards as set out in the agreement with the transferring body.

An example of this type of funding could be a housing support scheme.

The State provides the funding which is managed by the charity, and the charity pays the landlord directly. This funding is not regarded as being income in the financial accounts of the charity.

Where the charity receives payment from the State or the public body for processing these funds, this payment should be:

• included in total income
• excluded from qualifying income calculations.

Qualifying income

The proportion of your charity’s income that is privately funded is known as qualifying income. This excludes publicly funded income and income already excluded from the Total Income calculation.

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:

• Refunds or reliefs received under any other scheme or legislation administered by Revenue. For example, refunds received by filing a Value-Added Tax (VAT) Return, or claims made under the VAT Compensation Scheme or the Charitable Donation Scheme.
• Educational fees received if the charity is a school, university, institute of technology or educational establishment. Charities not included in these categories, but which received educational fees, are considered as educational bodies for that portion of their activities. They must exclude any such fees received from their total income.
• Income from shops, restaurants and retail outlets.
• 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 (EU) or EU bodies, or from bodies which received that funding directly or indirectly from the EU
• the public funding of any Member State of the EU
• a body which received that funding directly or indirectly from the public funding of a Member State of the EU
• 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.

Some examples of non-qualifying income are:

• Charitable Donations and Charities VAT Compensation Schemes refunds
• County council grants
• Charity shop income
• Housing Assistance Payment (HAP)
• and
• Community Employment Scheme (CES) payments.

More examples of non-qualifying income can be found in the VAT Compensation Scheme Tax and Duty Manual.

Next: What is qualifying expenditure and qualifying tax?