How Does VAT Affect Our Group?

VAT is quite a complex area, but it’s important that groups try and understand how it affects your groups and implications it has on your finances. We’ll try and explain it in more detail below and we’ve broken it down into different areas:

• VAT ON GROUP MEMBERSHIP FEES
• VAT ON PURCHASES
• VAT ON STANDARD EVENTS
• VAT ON CHARITY EVENTS
• VAT ON SPONSORSHIPS & DONATIONS/GRANTS

VAT ON GROUP MEMBERSHIP FEES

There are two types of student groups, and the VAT treatment is different for each category. It all comes down to whether your group is an “active” group or not, an “active” group being a group whose activities include physical activity (e.g. sport, dance, fitness groups), a “non-active” group is non-physical in its aims and objectives (e.g. academic, cultural, political & cause groups).

The government (and HMRC in particular) define which groups are active, and which are not, if your group is not listed as an “active” group on the HMRC list, then you will be classed as a “non-active” group.

Your group being “active” or “inactive” will then have an effect on your membership fees, and other associated costs.

A “non-active” group can expect to have 20% of your membership fee taken off you automatically (when it comes into your student group account VAT will have been taken off) and that 20% sent to HMRC. So, for example for every £120 of memberships you make, your group will receive £100 and the remaining £20 will go to HMRC. “Non-active” groups can however reclaim VAT on other costs where appropriate (more information on this can be found below).

An ”active” group on the other hand will keep 100% of your membership fees, however you cannot claim VAT back on expenditure related to the core activity of the group (e.g. if the group purchases yoga mats, a pole dancing pole etc).

VAT ON PURCHASES

In certain cases, our finance team can reclaim some VAT that your group will pay, meaning you will pay a lower amount for the item. When purchasing items for your group, please make sure that you provide the full invoice or receipt, which shows the VAT amount, when submitting the payment.  Our finance team will reclaim any VAT costs that they can for your group, there is nothing that your group needs to do, other than provide a VAT receipt / invoice.

For “active” groups, you cannot reclaim VAT on any purchases that relate directly to your core group activity (e.g. purchasing equipment to allow you to carry out that activity), but if you make any purchases for any events that are not your core activity (e.g. a social, a ball etc) then VAT can be reclaimed if the item is VAT reclaimable (again our finance team will make the claims where allowed by HMRC). 

VAT ON STANDARD EVENTS

When it comes to setting up events, “non-active” groups will have 20% VAT automatically taken off your ticket prices.

For “active” groups, if the event is one of your core activities (e.g. a dance class, an exercise session etc) then you won’t be charged VAT for those tickets and will keep all of the ticket price, but if the event is something that isn’t a core activity (e.g. a ball, a social etc) then 20% VAT will be taken off those ticket prices. 

When setting up events and budgeting it is therefore important that you factor in the 20% VAT charge for tickets, and other associated event costs, so that you set the correct ticket prices to make sure the event doesn’t run at a loss. 

VAT ON CHARITY EVENTS

If your group is planning on running an event to raise money for charity (e.g. a ball, bake sale),  you must make sure that the charity is registered in the UK and has a UK charity number as we cannot make donations to charities that aren’t, you can check the Governments register here - https://register-of-charities.charitycommission.gov.uk/charity-search to make sure. 

Once you have established that the charity is UK registered, as long as the event is clearly advertised as a charity event (please see the “How do we donate to charity” article to find out what you need to include when advertising) then all income for this event will be free of VAT, however the group will not be able to reclaim VAT on any associated costs so be sure to factor this in when budgeting for the event.

Your group will also need to decide whether you are donating ‘proceeds’ or ‘profits’ to charity and make sure this is advertised with the event. Proceeds would be all money gained from the event and profits would be all money minus any expenses.

VAT ON SPONSORSHIPS & DONATIONS/GRANTS

If your group secures any donations or grants, these will be VAT free so your group will receive the full amount.  

Sponsorships are a transactional agreement (relationship) between your student group and an external sponsor. They will generally give you something in exchange for something else (most likely promoting their opportunities to your members).

When you agree a fee with the sponsor you need to confirm with them whether VAT is included or not as this will affect the amount you receive, so make sure to check this with the sponsor about whether the amount they are providing is inclusive or exclusive of VAT, and make sure this is clearly stated on the sponsorship agreement too.      

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