Contrasting Tax and VAT treatment of some activities

In some circumstances the tax and VAT treatment of certain activities will be contrasting. Your charity needs to be aware of these differences but HMRC Charities can’t advise on which will be more beneficial for your charity. The table below outlines those most commonly encountered by charities.

Donated goods

Tax

The sale of donated goods is not regarded as a trading activity (instead being treated as the realisation of a gift)

VAT

The sale of donated goods is a business activity. Sales of donated goods are zero.
Property letting income

Tax

Rental income from land and buildings is not regarded as trading income and charities are exempt from tax on such income.

VAT

Income from property letting is always a business activity for VAT purposes which is exempt (unless your charity opts to tax)
Lotteries

Tax

Profits from lotteries run by charities (but not by their trading subsidiaries) are exempt from tax.

VAT

The sale of lottery tickets is exempt from VAT no matter who sells them.
Business sponsorship

Tax

Sponsorship income can be a trading activity but it may also be primary purpose trading so tax treatment needs careful consideration.
For more information please see the detailed guidance about business sponsorship.

VAT

If the sponsor receives anything in return for sponsorship e.g. display of the sponsor’s logo all of the payment is usually regarded as consideration for a business supply.
For more information please see the detailed guidance notes about VAT and sponsorship.
Low value articles e.g. poppy or lapel stickers, given in acknowledgement of a donation are disregarded
Payment for the use of a charity’s logo

Tax

Where a charity allows its logo to be used in return for payment to endorse one or more of the purchasers businesses the payments are likely to be trading income.
There are some instances where payments solely for the use of the charity’s logo are not regarded as trading income this will depend on the precise agreement between the charity and the business concerned. Further information is available on the use of a charity’s logo in the detailed guidance notes on trading and business activities

VAT

The grant of a right to a business sponsor for use of a charity’s logo is treated a supply of taxable business services for VAT purposes.