I had a 'phone call recently from a charitable organisation that was intending to give another charitable body a grant with which to buy vehicles. The intention of the grant giving organisation was to require the recipient to put certain logos on the vehicles to indicate that they had been funded by the organisations providing the money. By putting this requirement into the contract with the recipient organisation there seemed to be a danger that this could make the transaction liable to VAT. That VAT would have to be charged by the recipient but would be unrecoverable by the giver - so either the recipient lost out by about 15% or the donor had to find another 17.5% to fund the VAT. Neither answer was particularly good.

In this instance the advice given was simply to remove the clause that imposed an obligation on the recipient to do anything in return for the grant. Most recipients would be happy to make it clear who had provided the funds for the purchase of the goods, in this case vehicles, without it being obliged to do so. One of the potential recipients of the grant then contacted me to discuss whether the grant would, if the obligation to put the logos on the vehicles was retained, be zero-rated as paying for the supply of advertising to a charity.

Criteria for zero-rating

There are a number of criteria that have to be met for charity advertising to be zero-rated. H M Revenue & Customs (HMRC) set out these criteria in the VAT Notice 700/58. In summary, the criteria are:

• The advertisement has to appear in a medium that is available to the 'public'
• The advertisement has to occupy someone else's space or time, i.e. the advert cannot be on the charity's own web site, magazine, etc.

Advertisements can appear on any medium from billboards to newspapers, beer mats to sides of vehicles, and will qualify for zero-rating provided the space or time used belongs to someone other than the charity, i.e. the charity has to pay for the space or time being used for the advertising.