What Is Irrecoverable VAT?
Irrecoverable VAT refers to Value-Added Tax that cannot be recovered because the buyer purchased items for a non-business related activity.
Someone who buys goods for personal use cannot recover VAT. Charities cannot recover VAT on many of their purchases, according to Saffery.com.
Irrecoverable VAT poses a problem for charities and voluntary associations, according to the National Council for Voluntary Organisations (NCVO). It can represent a considerable added cost to their operations.
Examples of Purchases
An aid association that buys office telephones pays the cost of the phones plus VAT. The association depends on donations for its purchases and cannot recover the VAT, according to Saffery.com. Neither can the association recover VAT on supplies that it buys to provide emergency aid.
Sometimes a buyer uses goods for business as well as non-business purposes. In such cases the buyer must calculate what portion is used for each to determine recoverable and irrecoverable VAT, according to Saffery.com.