Most charities cannot recover the VAT they are charged on purchases and as a result, they could benefit significantly if they liaise with suppliers to ensure they are billed at the 17.5% VAT rate, instead of the 20% rate.

A charity could make savings by managing the increase and here are four potential ways:

1.) Any building work that is still in progress on 4 January is subject to the special rate change rules that allow the supplier to charge the 17.5% VAT rate on work actually performed this year.

2.) Where the charity receives continuous supplies of professional services, it should request that the company raises an invoice now for services it will supply next year, provided the outright saving outweighs any cash flow disadvantage.

3.) A charity paying VAT on their property rental could ask the landlord to raise an invoice this year at the 17.5% VAT rate for rental periods falling next year, provided the cash flow position can cope. If rent is invoiced in arrears and an invoice is raised after 4 January for a period before that date, the landlord can charge 17.5%.  The supplier has the discretion to do this, so charities should ask. If an invoice covers a period spanning 4 January, the supplier should carry out an apportionment, charging 17.5% VAT for the period pre 4 January and 20% VAT for the period after that date.

4.) If any expensive goods or services are due to be purchased after 4 January, the charity should either make payment or request that a VAT invoice is raised by the supplier before that date.

There are, however, strict anti-forestalling rules which impose a supplementary 2.5% VAT charge on the supplier where invoices are issued, or payments are received before 4 January 2011 for supplies made on or after that date and subject to certain other conditions being met.