VAT treatment of different types of charity income

Some of the most common sources of income received by charities and their VAT treatment are outlined below. This will help you decide how to apply VAT to taxable supplies if you’re already registered for VAT, or whether your charity needs to register for VAT.

Remember:

  • If you charity is registered for VAT you must charge and account for VAT on taxable supplies.
  • If your charity is not yet registered for VAT any income from taxable business supplies counts towards your taxable turnover when determining whether or not to register for VAT.

Donations

A freely given donation is outside the scope of VAT and is therefore ‘non-business’ for VAT purposes.

Income from advertising

The sale of advertising space is usually a standard VAT rated business activity, however the following exceptions apply:

  • If 50 per cent or more of the total adverts in a charity publication are placed by private individuals the charity can treat all the sums received as donations and therefore outside the scope of VAT.
  • Advertising space supplied to another charity can be zero-rated.

For more information please see VAT Notice 701/58 - Charity advertising and goods connected with collecting donations.

Grant funding

Charities often receive grant funding to support their charitable activities. If this is freely given, with nothing supplied in return it is outside the scope of VAT.

However, if the terms and conditions attached to the grant are such that funding is given in return for goods or services supplied by the charity it is viewed for VAT purposes as consideration for a supply. In this case, VAT may be due on the grant income if the goods and/or services supplied by the charity in return are taxable at either the standard or reduced rate.

For more information on deciding whether grant funding counts as taxable income, read section 5.10 of Notice 701/1 VAT and charities.

Admission charges

If your charity charges for admission this is normally a regarded as a business activity, chargeable at the standard VAT rate. However there are certain exceptions:

  • Cultural exemption - admission charges to certain cultural exhibitions and events can be exempted from VAT. For more information please see VAT Notice 701/47 - Culture.
  • Fundraising events - admission charges relating to fundraising events, including small scale events directly conducted by charities, (and other qualifying bodies), and larger fund-raising events conducted by the trading subsidiaries of charities - are exempt from VAT provided certain conditions are met. For more information please see helpsheet Fundraising events: exemptions for charities and other qualifying bodies.

Affinity Credit cards

If your charity receives income in return for endorsing a credit card this would normally count as income from a business activity (in return for marketing services provided to the financial institution) and would therefore be standard rated for VAT.

However, provided your charity isn’t acting as an intermediary between the card provider and the applicant, and your agreement with the card provider is properly structured, you should be able to treat part of the payment as standard rated and the balance as an outside the scope of VAT donation. For more information about affinity card income that may fall outside the scope of VAT please see paragraph 8 of VAT notice 701/1 - charities.

If your charity does act as an intermediary for the credit card company, any payments received for providing this service are exempt from VAT. A definition of “intermediary” in the context of affinity cards is available at paragraph 5.3 of VAT notice 701/1 - charities.

Charity shops and sales of goods

Although the sale of donated or bought in goods is a business activity, the precise VAT treatment depends on both the circumstances of the sale and the nature of the goods. For more information about VAT on sales of goods at charity shops please see paragraph 5.5 of VAT Notice 701/1 - charities.

  • If the goods are donated, in most cases they will be zero-rated – however, this may not apply if your charity makes use of the goods before selling them, or has a prior arrangement with the donor relating to the sale of those goods.
  • If your charity buys goods to sell on, the income will normally attract standard rate VAT unless the goods are zero-rated by law (children’s clothes, books etc).
  • If your charity sells donated or bought-in goods at a qualifying fund-raising event, for example by auction, then the income is zero-rated (but you can’t claim back VAT on the purchase of bought in goods).

Fund raising events

Some income received by your charity from certain fund raising events is exempt from VAT, provided the event meets particular conditions and people attending or participating are aware of its primary fund-raising purpose.

Sponsored events can also be covered by this exemption, but not commercially organised sporting events or certain adventure challenge events so you need to carefully consider the income received for VAT purposes.

Activities of a semi-regular or continuous nature – eg frequent operation of a shop or bar - don’t count as ‘events’, and income from social events which incidentally make a profit isn’t exempted from VAT. For more information about please see the helpsheet Fund raising events: Exemption for charities and other qualifying bodies

Hiring out of a building

Hiring out of buildings is a business activity that is usually exempt from VAT.

However, if your charity, as landlord, has ‘opted to tax’ the building, VAT is charged on rental income at the standard rate. For more information about hiring out of buildings or village halls please see paragraph 5.11 of VAT notice 701/1 - charities.

The option to tax isn’t normally available if your charity is hiring the building to another charity or as a dwelling or residential unit - in this case the income will be exempt from VAT and you may not be able to claim back VAT on expenses. You therefore need to carefully consider your plans for a building before opting to tax.

For more information about the option to tax please see VAT notice 742A – opting to tax land and buildings.

Benefits connected to membership subscriptions

Membership subscriptions are business income and the provision of benefits to members of a club or association is a business activity. The VAT treatment of the membership subscription will usually be determined in relation to the benefits being supplied.
Normally, the supply of a package of benefits (eg free theatre seats, plus free quarterly theatre magazine etc.) has to be treated as a single supply and VAT treatment of the income follows the VAT treatment of the principal benefit. (In this case the principal benefit would be the free theatre seats which are standard rated for VAT- so the magazines would have to follow even though printed matter would otherwise be zero rated).

However, a special concession allows charities and non-profit making organisations to treat packages of membership benefits as ‘multiple supplies’. This means you can consider and apportion the VAT treatment of each benefit individually against the subscription charge. In the example used it means that your charity could benefit from being able to treat the supply of the theatre magazine as zero rated. For more information about the VAT treatment of membership subscriptions by charities please see paragraph 5.13 of VAT notice 701/1 - charities.

If the whole of a subscription is an entirely voluntary payment and secures nothing or only nominal benefits (eg lapel badge, flag etc) in return, then it is treated as a donation and is therefore outside the scope of VAT.)