Business and non-business: Charitable activities: Treatment of welfare services supplied below cost: Calculating the cost
The cost should be calculated to include all out of pocket expenses incurred by a charity in providing the welfare services. It should exclude the following:
- All capital expenditure on buildings. Inclusion of these values would distort the cost of making the welfare supplies.
- Notional charges for depreciation. These are not actual charges incurred.
- The creation of financial reserves, contingency funds etc. These are not actual charges.
- No account should be taken of what it would cost a commercial organisation to provide the same service. Therefore the fact that a charity may benefit from using unpaid volunteer labour means that the cost of providing the service is less. What is important is the actual cost not the commercial value.
- Similarly donated goods for use in the provision of welfare services should not be included, as they cost nothing.