Animal welfare charity the MSPCA faces paying a big bill to the taxman after it discovered it had inadvertently been overclaiming VAT for several years.

Steve Burrows, one of the directors of the Manx Society for the Prevention of Cruelty to Animals, said it would be inappropriate to reveal the scale of the discrepancy until the charity’s annual general meeting next Monday.

But he insisted that animal welfare services would not be impacted even if the final bill turns out to be significant.

He told the Manx Independent: ’I don’t know how significant it will prove to be in terms of our overall finances. I’m confident it will not be sufficiently significant to disrupt the operations and viability of the MSPCA. If there turns out to be a substantial bill, the order of magnitude which is not for me to disclose, this will in no way threaten our ongoing viability and ability to deliver services. Services are not going to be impacted by this.’

The error, described as an ’unintended accident’ came to light after a report to a board meeting in late April after the VAT position was reviewed.

Ard Jerkyll staff, with the assistance of an accountancy firm, have been going through financial records going back several years to establish the scale of the overpayment. An exact figure won’t be established until it has been agreed with Customs and Excise.

Mr Burrows said it had been a ’nightmare’ for all involved and it had been ’extremely distressing’ for those who had mistakenly applied the wrong rules on VAT liability.

VAT returns had been prepared and filed in good faith by members of staff who were not tax specialists, he said.

He stressed: ’There has been no intentional wrong-doing by anybody. This was a genuine honest mistake with no mal-intent of any sort.

’Our current board recently came to the realisation that historically the MSPCA has been taking the wrong approach to calculating its VAT liability and filling in its VAT returns. Proactively we decided to investigate to gain an understanding what the actual figure should have been.’

He said the mistakes in preparing VAT returns had been going on for several years, before the vast majority of the current members had joined the board.

He said the VAT rules relating to charitable organisations are very complex.

In general, a charity must comply with the same rules as other businesses regarding VAT. Until recently, the MSPCA had been filing returns in which all vatable supplies were charged with VAT and all VAT on goods and services received were reclaimed.

But this was not correct as some of its services are not vatable and so any VAT incurred should not have been recovered.

Mr Burrows said: ’We have an order of magnitude but it could be 20 per cent either way.’ He said it would be ’entirely inappropriate’ to put that figure into the public domain before the AGM at Ard Jerkyll on Monday.

He said once the MSPCA had arrived at a final figure, this would have to be agreed with Customs together with how it would be paid back and what penalties may be due.

’We need to get it sorted as soon as possible. But I would not expect this to be resolved quickly,’ he said.

Mr Burrows said the scale of the overpayment may not be as big as first feared and it was clear that while the MSPCA had mistakenly reclaimed VAT in excess, the charity had also been overcharged VAT on services supplied as some suppliers may have charged the wrong rate.

The board has recently taken on several new members who are qualified in tax, finance and corporate and charity governance.