Irish government extends VAT compensation scheme, but no increase to funding pot

Nonprofits across Europe face a hefty tax burden when it comes to VAT; one that ECCVAT estimates to cost in the region of €6 billion annually.

In the latest budget announcement, the Irish government has confirmed that its pilot VAT compensation scheme will be continued, but that the limited funding pot will not be increased. This has led to the Irish charity sector voicing disappointment with the limitations of the scheme.

With applications for VAT compensation being eight times greater than the funding pot, Charities Institute Ireland (Cii) had lobbied government not only to keep the scheme in place but to raise the current €5m fund to €20m, enabling more nonprofit organisations to access VAT compensation.

Chair of Charities Institute Ireland, Lisa Nicole Dunne, says:

“We are disappointed that the €5m cap has not been raised. Charities are not only recovering from the impact of Covid on fundraising, and on their own teams, they’re coping with greater demand on vital services. Increasing the VAT compensation scheme would have been a significant boost and provided additional security to the sector to help them support communities to deliver those vital services.” 

Understanding Ireland’s VAT compensation scheme

Ireland’s VAT compensation scheme was introduced on a trial basis in 2018 after a successful sector lobbying campaign to alleviate the tax burden for nonprofits. The scheme allows charitable organisations to claim a refund of a proportion of their eligible VAT costs from a €5m funding pot.

Last month, the Irish government announced that the scheme, initially a 3-year programme (2018-2020) and retained for 2021, would be extended once more to the end of 2022.

Changes in 2022

Next year, new safeguards will be introduced and this is a step that Cii welcomes. From January 2022, a maximum eligible claim ceiling of €1m will be introduced, to guard against large claims disproportionately benefiting from the scheme.

Cii will continue to petition for the compensation scheme to be extended and increased in next year’s budget.

Find out more about the Irish compensation scheme here.