In this section:
- VAT for charities and not-for-profit organisations: introduction
- VAT treatment of common types of charity income
- How VAT applies to fundraising events
- VAT reliefs on charity purchases
- Zero-rated VAT on charity-funded equipment
- Reduced rate VAT on fuel and power used for charity non-business use
- How charities can import goods VAT-free
- Charging VAT if you make supplies to charities
VAT for charities and not-for-profit organisations: introduction
Charities and other not-for-profit organisations, such as Community Amateur Sports Clubs (CASCs), are generally subject to the same VAT rules as other businesses. However, there are a number of special VAT reliefs and exemptions available to charities and certain other eligible bodies, subject to specific conditions and restrictions.
This guide provides an introduction to:
- working out whether your charity or organisation needs to register for VAT
- the sorts of activities you may have to charge VAT on
- special VAT reliefs for charities and certain other bodies on purchases - excludes CASCs
It then links you to further information on each of the above.
On this page:
- Does your organisation need to register for VAT?
- What income should you charge VAT on?
- What counts as a business activity for VAT purposes?
- Reclaiming VAT
- VAT on goods obtained from outside the UK
- Contacting the HMRC Charities Helpline
- More useful links
Does your organisation need to register for VAT?
Your organisation must register for VAT if its turnover for the previous 12 months from 'taxable business activities' (explained below) is above an amount known as the VAT registration threshold.This is currently set at £67,000. You must also register for VAT in certain other circumstances (read our related guide on when to register for VAT to find out more).
If your turnover from taxable business activities is below the registration threshold, you can apply to register for VAT voluntarily. This means you will have to account for VAT on the taxable supplies that you make but you will also be able to reclaim VAT that you pay on purchases relating to them.
If you find your income from taxable business activities isn't high enough yet for you to register, and you don't want to register voluntarily, you should monitor your taxable income to see if it does cross the threshold for registration.
If you have no business activities or your only business activities are exempt from VAT, you can't register for VAT.
Find out more about when you must register for VAT and when you can choose to register
What income should you charge VAT on?
If you're VAT registered you'll have to charge VAT on your taxable business supplies at the appropriate rate. Depending on the product or service you supply, the rate you charge is the standard rate (15 per cent), the reduced rate (5 per cent), or zero rate.
The standard rate of VAT is reduced from 17.5 to 15 per cent from 1 December 2008 to 31 December 2009. The standard rate will change back to 17.5 per cent on the 1 January 2010.
Find out more about the different rates of VAT that apply to different types of goods and services
What counts as a business activity for VAT purposes?
If your charity provides goods or services for a charge, you are generally carrying out a business activity - because you are supplying something to someone in return for a payment. This applies even where the goods and services you supply are being provided in order to meet your charity's aims.
However, not all business activities are 'taxable' for VAT purposes.
Taxable business activities
The VAT threshold applies only to the turnover from your 'taxable business supplies'.This is your turnover from supplies that have a standard, reduced or zero rating. You must include your turnover from these sorts of activity when working out whether you need to register for VAT.
Exempt business activities
Some business activities are exempt from VAT altogether (non-taxable) and you shouldn't include this income when working out whether you need to register for VAT.
To find out which types of business activity are taxable (and at what rate) or exempt - and what related conditions might apply, read our guide on VAT treatment of common types of charity income.
VAT treatment of common types of charity income
Non-business activities - outside the scope of VAT
Income from non-business activities is outside the scope of VAT. This is different from business activities that are exempt from VAT. However - as with exempt activities - you ignore this type of income when working out whether you need to register for VAT.
There are a number of guiding principles you can use to help you decide whether or not something is a business activity. These are based on court decisions.
Examples of non-business activity that is generally outside the scope of VAT include:
- receiving income from purely voluntary donations where nothing is given in return
- receiving grant funding
- activities where your charity doesn't make a charge
If you carry out business activities and are registered for VAT, but you also have some non-business activities, you can't recover any VAT that you are charged in relation to the non-business activities.
See the section 'Reclaiming VAT' below.
Read more about what counts as a business activity in paragraph 4.1 of VAT Notice 701/1 Charities
Find out more about income that is outside the scope of VAT
What purchases will you have to pay VAT on?
Many of the goods and services that your charity buys will be subject to VAT - regardless of whether you're VAT registered.
If your charity is VAT registered you may be able to reclaim some of the VAT you are charged from HM Revenue & Customs (HMRC). See the section 'Reclaiming VAT' below.
VAT reliefs on charity purchases
There are some reliefs available to charities on certain goods and services which mean you may be able to buy them at the zero rate or reduced rate of VAT - whether or not you're registered for VAT.
For example, you may be able to buy fuel and power at reduced rate VAT or you may be able to pay a zero rate of VAT on certain goods you make available to disabled people - subject to certain conditions.
To get these VAT reliefs your organisation must be recognised by HMRC as a charity for tax purposes. You'll also have to provide the person supplying the goods to you with an eligibility declaration that certifies that certain conditions have been met, and that you qualify for the relief.
Note that these VAT reliefs for charities are not available for CASCs.
Find out more about VAT reliefs on charity purchases
Find out how to apply for recognition as a charity with HMRC
VAT relief on the purchase of certain charity funded equipment
Certain goods and services can be zero-rated for VAT when purchased by certain eligible bodies with charitable or donated funds or when purchased by someone else to donate to an eligible body.
Find out more about VAT relief on charity-funded equipment
Reclaiming VAT
If you're VAT registered you can reclaim the VAT that you are charged on purchases relating to your taxable business activities. However, you can't reclaim the VAT you are charged on purchases relating to your exempt business activities or to any non-business activities.
If you are charged VAT on goods and services that you use for both business and non-business activities you must apportion the VAT between 'business' and 'non-business'.
Reclaiming VAT if you make both taxable and exempt business supplies
If you're VAT registered and make a mix of taxable and exempt business supplies, you can only reclaim the VAT you're charged on the purchases that relate to your taxable supplies. For purchases and overheads that are used for both taxable and exempt supplies, there are rules to work out what proportion relates to the taxable supplies and how much VAT you can recover.
Find out more about reclaiming VAT when you make both taxable and exempt supplies
Submitting your VAT return
If you're VAT registered you have to send HMRC a VAT Return - normally every three months - with an account of the VAT you charged on your taxable supplies and the VAT you're reclaiming on your purchases. The difference between the VAT you charge and the VAT you're reclaiming is the amount of VAT you must pay to HMRC. If the value of the VAT you are reclaiming is more than the value of the VAT you charge, then HMRC pays you.
VAT on goods obtained from outside the UK
Goods purchased from other European Union (EU) countries
If you are a VAT-registered charity and you buy goods from other EU countries for your business activities, you won't normally have to pay VAT when you bring the goods into the UK. Instead, you account for any VAT due on your next VAT Return, at the rate that would have applied if your organisation had bought the goods in the UK.
Read about buying goods from within the EU in VAT Notice 725
VAT-free imports from outside the EU
Certain donated goods can be imported free of VAT from outside the Customs Union of the EU, by charities and a range of other types of organisation. The Customs Union includes the EU, San Marino, Andorra and Turkey. The goods have to be either:
- basic necessities for the needy and vulnerable
- goods to be used or sold at charity events for the benefit of the needy and vulnerable
- equipment and office materials to help run an organisation for the benefit of the needy and vulnerable
Find out how charities can import certain goods VAT-free
Contacting the HMRC Charities Helpline
For more information you can contact the Charities Helpline on Tel 0845 302 0203 (open from 8.00 am to 5.00 pm, Monday to Friday). Select option 3 for VAT reliefs.
More useful links
How VAT applies to fundraising events
Reduced rate VAT on fuel and power used for charity non-business use
