Are charities paying too much for business energy?
Is it true that charities are paying out several million pounds in unnecessary taxes for business energy?
According to the HM Revenue & Customs website, charities only have to pay 5 per cent VAT on business energy used for "non-business activities" for which the charity’s only income is donations or grants, according to the HM Revenue & Customs website.
They can get the VAT discount on all their energy for both gas and electricity, if these 'non-business activities' account for at least 60 per cent of their energy.
What are 'non-business activities'?
If you are a charity, working out what your non-business activities are is the crux.
It's all a bit subjective because again according to the HMRC website, 'neither the UK nor EC law provides a definition or test for working out whether an activity is business.' That can actually be a help rather than a hindrance because the onus falls on the SME to establish whether or not activities are deemed for profit making. So you can identify and express what you consider to be charitable work and just giving, or fund raising.
There's such a thing as the 'Business Test'. You find it on the HMRC website. Bit of a contradiction, however.
What you have to consider is whether or not the activity in question is concerned with the making of taxable supplies or profit? From there get an understanding that no more than 40 per cent of your business activity is for profit.
Take time out to calculate just how much tax you are paying for your business energy. As a charity, you could be paying too much.