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The income that your charity generates may be taxable (liable to VAT), exempt from VAT or outside the scope of VAT. There are conditions attached to the types of income that are exempt from VAT, and your organisation may have to meet certain conditions in order to qualify.
For each type of income, the conditions and criteria that determine the VAT treatment can vary, so you need to check the details in every case. This guide provides a summary of the VAT treatment of common types of income, with links to further information.
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If your organisation is required to be registered for VAT, then you'll have to charge VAT on any taxable goods and/or services that you supply at the appropriate rate of VAT - either at the standard rate (20 per cent), the reduced rate (5 per cent) or the zero rate. However, you can reclaim the VAT that you are charged on purchases relating to your taxable business supplies.
Some supplies of goods and services are exempt from VAT. You don't charge VAT to your customers on exempt business supplies, and you can't reclaim the VAT that you are charged on purchases relating to those supplies.
Business supplies in the UK are generally taxed at the standard rate unless a specific relief or exemption applies. 'Non-business income' is outside the scope of VAT.
Note that the standard rate of VAT was temporarily reduced to 15 per cent on 1 December 2008 and returned to 17.5 per cent on 1 January 2010. On 4 January 2011 the standard rate increased to 20 per cent.
To apply the VAT reliefs and exemptions available for charities your organisation must hold evidence that it is registered with the Charity Commission for England and Wales. If it is not registered with them - for example, if it is exempt from registration with the Charity Commission or is a Scottish or Northern Ireland charity - then it must have evidence that it has been formally recognised as a charity by HM Revenue & Customs (HMRC) for tax purposes.
A freely given donation for which nothing is given in return is non-business income and is outside the scope of VAT.
You might receive grant funding to support your activities. If this funding 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 the funding is given in return for goods or services supplied by the charity, then this may count as a taxable business activity and VAT may be payable on the funding income.
For more information on deciding whether grant funding counts as taxable income, read the section on 'Grant Funding' in 701/1 Charities.
The sale of advertising space is usually a standard-rated business activity, however the following exceptions apply if you are a charity:
You can find out more by following the link below. This will take you to Notice 701/58 Charity advertising and goods connected with collecting donations.
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, in some circumstances you should be able to treat part of the payment as standard-rated and the balance as a donation outside the scope of VAT.
For more information about affinity card income that may fall outside the scope of VAT please see the section on 'Treatment of income from affinity credit cards' in Notice 701/1 Charities.
Although the sale of donated or bought-in goods by a charity or its trading subsidiary is a business activity, the exact VAT treatment of your supplies 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 the section on 'Charity shops and sales of goods' in Notice 701/1 Charities.
Supplies made by charities and certain other qualifying bodies at certain fundraising events are exempt from VAT, provided that the event meets particular conditions and that people attending or participating are aware of its primary fundraising purpose.
The exemption covers admission fees and other income connected with the event, for example from the sale of goods, refreshments etc.
Sponsored events, such as sponsored walks, runs etc can also be covered by this exemption, but commercially organised sporting events can't be covered.
Fundraising events that include a package of travel and/or accommodation, such as some charity challenge events, might not qualify for the exemption. You therefore need to carefully consider the VAT implications for the income received from fundraising events.
You can read the detail in our related guide 'How VAT applies to fundraising events'.
Social events (not publicised as fundraising events) that happen to make a profit don't fall within the fundraising exemption and VAT may be due on any supplies you make.
For more information see the link to the helpsheet 'Fundraising events: Exemption for charities and other qualifying bodies' at the end of this section.
Activities of a semi-regular or continuous nature - for example the frequent operation of a shop or bar - don't count as 'events'.
The hiring out of a building is a business activity that is usually exempt from VAT. You therefore can't claim VAT back on your related expenses. However, if your organisation as landlord, has 'opted to tax' the building, the rental income may be standard-rated, and you may be able to recover VAT on your expenses.
For more information about the hiring out of buildings or village halls please see section on 'Hiring out buildings, including village halls' in Notice 701/1 Charities at the end of this section.
For more information about the 'option to tax' and when it can't apply, see the section on 'Supplies not affected by an option to tax' in Notice 742A Opting to tax land and buildings.
There are special VAT exemptions for certain services supplied by a qualifying body. They are for:
You don't necessarily have to be recognised by HM Revenue & Customs (HMRC) as a charity to qualify for these exemptions. There are other types of body that may qualify.
These exemptions are available to charities and other qualifying bodies.
Some supplies made to members by certain non-profit making public interest bodies in return for a subscription can be exempt from VAT. For more information see section on 'Trade unions and other representative bodies' in Notice 701/5 Clubs and Associations at the end of this section.
There is also a special arrangement for the VAT treatment of membership subscriptions by non-profit making bodies whether or not their supplies are exempt. Normally, there is one 'principal benefit' within a package of benefits to which all the other benefits are supplementary or incidental. In such cases the package would be treated as a 'single supply' for VAT purposes with the VAT treatment of the additional benefits following that of the principal benefit.
For example, if the principal benefit offered by a theatre club is theatre seats, and the other benefits - such as the right to receive a theatre magazine (zero-rated) - are incidental, the whole supply would be treated as a supply of admission, which would be standard-rated or exempt depending on whether the exemption for cultural activities applies.
However charities and non-profit making organisations can treat packages of membership benefits as 'multiple supplies'. This means you can apportion the VAT treatment of each benefit individually. In the example above it means that you could benefit from being able to treat the supply of the theatre magazine as zero-rated.
For more information about this special apportionment of membership subscriptions see section on 'Membership' in Notice 701/1 Charities.
Welfare services provided by charities are exempt from VAT. Welfare services cover the following supplies:
If your charity provides welfare services to distressed individuals at a significantly reduced cost, subsidised by at least 15 per cent, this may be treated as a non-business activity and outside the scope of VAT.
Welfare advice or information provided by charities or state regulated-private welfare institutions or agencies is subject to VAT at the reduced rate (5 per cent). Welfare advice or information is advice or information that directly relates to the
It relates to the above groups of people, not to the specific need of a particular individual.
The supply of transport services for sick or injured persons is exempt from VAT subject to the following conditions:
For more information on what qualifies as 'specially designed' see section on 'Ambulance services' in Notice 701/1 Charities.
Catering is a business activity normally liable to VAT at the standard rate. However some catering can be exempt from VAT when carried out by a charity. For example, catering provided as part of a welfare service, or certain food and drink supplied to patients in hospitals or inmates in prisons.
For more information see section on 'Catering' in Notice 701/1 Charities.
If you are a charity and you supply goods from the UK to somewhere outside the EU free of charge - for example as relief aid - you can treat that as a business activity taxable at the zero rate of VAT. This means that if you export aid free of charge you can choose to register for VAT, and then reclaim any VAT you're charged on obtaining and exporting the goods.
For more help you can contact HMRC Charities by phone, email or post.