Covid VAT Update – Donated PPE & the Business Gift VAT rules

For regular readers of our Newsbytes you will be familiar with the issue we have been raising on the VAT consequences when any type of VAT registered entity – business, charity, university or college – makes, buys in and then donates PPE or other goods to another entity. If the value ( at cost) exceeds £50 and any element of VAT recovery has occurred – whether partially or in full – on the related costs then the organisation making the donation has to account for VAT on the cost value of the donated goods. Suggestions have been presented to HMRC as to how to address the VAT cost that this would create especially for organisations such as universities who are, like many, already facing financial burdens following the lockdown, in having to pay VAT on a supply they donate to the NHS.

HMRC has announced a temporary VAT Zero rate treatment which would remove this VAT cost on specific PPE items see our earlier post but that still leaves the VAT liability on gifts to be accounted for in the period to the 30^th April 2020 on the value of such donated PPE equipment. Whilst this VAT liability will remain, the Government has announced that the value of VAT collected by HMRC on donated PPE equipment will be donated back to NHS Charities by HMRC.

“The Care Workers Charity and NHS Charities Together will benefit from the government donation, which is expected to be worth hundreds of thousands of pounds.

The government introduced a temporary zero rate of VAT on PPE on 1 May to reduce costs for care homes and businesses buying the essential equipment during the Covid emergency.

The amount to be donated to charity will reflect the VAT collected on donations made from 1 March until 30 April - the period between PPE donations starting and when the zero VAT rate became effective.”

What is different about this scheme is that VAT registered bodies will have to notify HMRC as to the value of VAT that they have accounted for on these items in order for this donation to be made and there is a specific email address to which information on the value of VAT that has been accounted for should be sent. HMRC have given until the 30^th June for the information to be submitted.  Affected businesses should contact mailto:ppe@hmrc.gov.uk for further information.

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