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Charities are generally subject to the same VAT rules as any other organisations. There are, however, a number of VAT reliefs and exemptions available specifically for charities, subject to certain conditions and restrictions.
Charities and not-for-profit organisations are not the same things. Whilst all charities will be non-profit making organisations, not all non-profit making organisations are charities. For example, Registered Community Amateur Sports Clubs, are not charities.
There are some VAT reliefs and exemptions available for certain types of not-for-profit organisations, subject to certain conditions and restrictions. These are mentioned in this guide.
This guide provides an introduction to:
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In order to take advantage of the VAT reliefs and exemptions 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.
When your charity buys goods and services you will normally have to pay VAT just like anyone else. However, there are some VAT reliefs available for charities on certain goods and services which mean you may be able to buy them at the zero rate or reduced rate of VAT. For example, subject to certain conditions, your charity may be able to buy fuel and power at the reduced VAT rate, pay no VAT on advertising or pay no VAT on certain goods you make available to disabled people.
Only charities are entitled to the special VAT reliefs for charities. To get these reliefs you will have to provide the person supplying the goods to you with evidence that you are a charity and a written eligibility declaration or certificate confirming that the conditions for the relief have been met.
The charity VAT reliefs apply only to certain goods and services. You will still have to pay VAT on your other purchases at their normal rate. If your charity or organisation is VAT registered you may be able to claim back some of the VAT you are charged from HMRC under the normal VAT rules. See the sections in this guide on ‘Does your organisation need to register for VAT?’ and ‘Reclaiming VAT on your purchases’.
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.
If you are a VAT-registered charity and you buy goods from other European Union (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.
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. It makes no difference whether or not you are VAT registered. The Customs Union includes the EU, San Marino, Andorra and Turkey. The goods have to be either:
Your charity 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.
You must also register for VAT in certain other circumstances.
If your turnover from taxable business activities is below the registration threshold, you can apply to register for VAT voluntarily. If you are registered for VAT you 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.
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 though you are a charity and the goods and services you supply are being provided in order to meet your charity's aims. However, not all supplies made by way of business are 'taxable' for VAT purposes.
The VAT threshold applies only to the turnover from your 'taxable business supplies'.This is your turnover from supplies that are standard-rated (20 per cent), reduced-rated (5 per cent) or zero-rated (0 per cent). You must include your turnover from these sorts of supplies when working out whether you need to register for VAT.
Some business supplies are exempt from VAT altogether (non-taxable) and you shouldn't include income from your exempt supplies when working out whether you need to register for VAT. For more information about the types of goods and services that are taxable and which types are exempt. See the section below 'What income should you charge VAT on?'
Income from non-business activities is outside the scope of VAT. This is different to income from business supplies that are exempt from VAT. However - as with exempt income - you ignore any income from non-business activities 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 something is a business activity or a non-business activity. These are based on court decisions.
Examples of non-business activities that are generally outside the scope of VAT include:
If you're VAT registered you'll normally 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 will be the standard rate (20 per cent), the reduced rate (5 per cent), or the zero rate (0 per cent).
There are some special rules for certain types of income for charities and certain types of not-for-profit organisations. For example, charities selling donated goods can normally treat them as zero-rated for VAT, and charities and certain other qualifying bodies may be able to treat supplies they make at certain fundraising events as exempt from VAT. To find out more about these and the special conditions that might apply read our guide on the VAT treatment of common types of charity income.
Many of the goods and services that your charity buys will be subject to VAT - regardless of whether or not you're VAT registered. If your organisation is VAT registered you may be able to claim back some of the VAT you are charged from HMRC.
If you're VAT registered you can reclaim the VAT that you are charged on goods and services relating to your taxable business activities. However, you can't reclaim the VAT you are charged on goods and services 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' use.
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 goods and services that relate to your taxable supplies. For goods and services 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.
If you're VAT registered you have to send HMRC a VAT Return - normally every three months – showing 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.
For more help about charities you can contact HMRC Charities by phone, email or post.
How VAT applies to fundraising events run by charities and other qualifying bodies