VATP011 Public Clarification on donations, grants and sponsorships
VATP011 describes the VAT treatment of donations, grants or sponsorships received by taxable persons from third parties, and whether these are to be treated as consideration for a taxable supply.
The document states that the VAT treatment of such payments depends on whether the party making the payment receives any benefit in return. If any benefit is received, a VAT liability will arise, whereas if no benefit is received, the payment will be out of scope of VAT as it would not be consideration for a supply.
Examples of such benefits include providing promotional space to a business in return for its donation, displaying a sponsor’s logo, or using a grant to conduct research which is used in the business of a grantor. Such cases would make the donation, grant, or sponsorship consideration for a supply, and consequently subject to VAT.
Where donations, sponsorships, and grants are given in the form of goods, deemed supply provisions may apply.
The new Public Clarifications make it clear that certain transactions must be carefully assessed to determine if a taxable supply is made in return for consideration, in order to apply the correct VAT treatment and avoid the risk of penalties.