As a CIC, we recycle unwanted carpet tiles which we dont' pay for - ie they're donated to us and then after an internal process sell them for community benefit. We recently found out that we should be VAT exempt on donated goods -unfortunately HMRC didn't agree because we're not a charity. Any advice about VAT, CICS and donated goods would be hugely appreciated.
Thanks Ellen, Cleanstreamcarpets CIC
Hi, the possibility is that if you have specified within your CIC articles that profits go to a charity or in writing elsewhere that profits from the donated goods go to charity, then you could potentially argue with HMRC that the sale of the donated goods should be zero rated as the profits are being given to a charity rather than to develop the CIC or for private profit. However, most CICs are set up and specify that surpluses will be used for reinvestment in the CIC, business development or donated to charity, rather than just specifying one. You may be able to specify via another document that profits from the donated goods go to charity, and HMRC may accept that, but if that were the case would it affect the financial viability of your CIC?