VAT for charities and other not-for-profit organisations

In this section:

How VAT applies to charities and not-for-profit organisations
Zero-rated VAT on charity-funded goods or services
How VAT applies to charity fundraising
Reduced VAT on gas and electricity used for charity purposes
How charities can import goods VAT free

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How VAT applies to charities and not-for-profit organisations

How VAT applies to charities and not-for-profit organisations

If you are a charity, you may have to register for VAT, or you may be able to choose to register. This guide helps you work out whether any of your activities are taxable, and whether you must, or can choose to, register.

If you have to register, this guide tells you briefly what you have to do, and where you can find more information. It explains which types of charity income are likely to be liable to VAT.

There are several VAT reliefs and exemptions available to charities and other eligible bodies on certain types of expenditure or income. You may be able to pay a reduced rate of VAT, or no VAT at all, on certain purchases or imports, and you may be able to make certain sales without charging VAT. This guide explains what these reliefs and exemptions are, and where you can find detailed information.

On this page:

Work out if you need to register for VAT
Charity income and whether it's taxable
Purchases that charities and other bodies can get relief from VAT on
VAT reliefs for purchases and sales abroad
VAT exemptions for sport, education and culture

Work out if you need to register for VAT

Charities are subject to the same VAT registration rules as other businesses, so you may have to register if your taxable supplies are above a certain amount. With a normal business, it's just a matter of deciding what's exempt from VAT and what's taxable, and then adding up the annual value of taxable supplies.

But charities or other not-for-profit organisations are very likely to have income generated by non-business activity - such as voluntary donations. Indeed, a charity's activities could be entirely non-business, exempt business or taxable business, or any combination of these three.

Non-business income, such as an outright donation, is outside the scope of VAT, and therefore doesn't count as either taxable or exempt income. What can sometimes be challenging, however, is to assess exactly what is and isn't a business activity.

What are business activities?

First you need to work out which of your activities are business activities. Then you can look at the income they generate, and work out how much of it - if any - is exempt. What you're left with is taxable income, which you can use to determine whether you need to register.

Sometimes it's easy to tell what's a business activity. Selling greetings cards on a commercial scale is quite obviously a business activity, for example. Generally, if you provide any goods or services and make a charge for them, you're carrying out a business activity.

It's not always so easy, but there are a number of guiding principles you can use to judge whether something is a business activity. For example, you might want to think about whether an activity is a 'serious undertaking, earnestly pursued', and whether it's 'conducted in a regular manner and on sound and recognised business principles'.

These principles are based on decisions by VAT tribunals.

More guidance on determining what constitutes a business activity in VAT Notice 701/1

What is taxable income?

Once you've decided how much of your income is generated by business activities, you then need to consider whether it's taxable, or exempt from VAT. Only income from taxable supplies counts towards the VAT annual registration threshold - currently £67,000. Bear in mind that in addition to the normal rules for exemption, some charity income that would normally count as taxable income might qualify for one of the special VAT exemptions for charities, and so won't count towards your total. You therefore need to read the rest of this guide and follow up the links to more detailed further reading.

If you do make some taxable supplies but are below the registration threshold, you can apply to register voluntarily. You might want to do this because if you're registered for VAT, you can usually reclaim VAT on purchases you make that relate to your taxable supplies - and this applies even if the taxable supplies are zero-rated. On the other hand, you will have to account for VAT on any standard-rated supplies you make. Depending on your situation, therefore, you could stand to gain financially by registering for VAT.

If you find your taxable income 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.

Find out more about the products and services where you have to charge VAT

Find out more about when you must register for VAT and when you can choose to register

What can you reclaim?

You can't automatically reclaim all VAT that you pay out on purchases. If you generate a mix of taxable and exempt income, then you can only reclaim VAT on purchases that relate to the taxable income you make. For overheads that are shared between a mix of activities that generate taxable and exempt income, there are rules to work out what proportion you can apportion to your taxable business activities.

Find out more about reclaiming VAT when you have a mix of exempt and taxable income

Find out more about what you can reclaim in our guides to reclaiming VAT

If you do register

If you do register 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. You'll have to send us a return - normally every three months - with an account of the VAT you've received and paid out, and if you've received more than you've paid out, you'll have to pay it to us within strict time limits. But if you've paid out more than you've received, we'll send you a refund.

Find out how to register for VAT

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Charity income and whether it's taxable

With many forms of charity income, it isn't always immediately obvious whether it should be exempt or taxable, and if taxable, at what rate. For example, admission charges are normally taxable at the standard rate of VAT, but in many cases, admission charges made by a charity may qualify either for the fundraising event exemption, or for the cultural exemption.

There are detailed conditions attached to the types of charity income that are exempt from VAT, and the organisation itself may have to meet certain conditions in order to qualify - but doesn't necessarily have to be a charity. For each type of exemption, the conditions for the exemptions and the criteria for qualifying bodies can vary, so you need to check the details in every case.

Charity income that might qualify for different VAT treatment includes:

admission charges - may qualify for fundraising event or cultural exemptions, or if people can enter for free but voluntary donations are asked for, these would be outside the scope of VAT altogether
advertising services - income from adverts in a publication may be outside the scope of VAT if more than 50 per cent of the total are private adverts with no mention of a business
affinity credit cards - some of the payment you receive may count as a donation and so be outside the scope of VAT
ambulance services - subject to conditions, these are exempt from VAT
charity shops and the sale of goods - although these are business activities, the sale of donated goods may qualify for zero-rating
catering - although catering is normally a business activity, some catering carried on by a charity may be exempt
donations - donations freely given with nothing supplied in return are outside the scope of VAT
grant funding - is outside the scope of VAT as long as no goods or services are provided in exchange, whether to the donor or a third party
hiring out buildings - hiring out buildings such as village halls may be exempt or standard rated, depending on several factors
museums and galleries - if admission is free, that's a non-business activity and you can't normally reclaim VAT on your expenditure, but special rules may apply
membership - membership of a club or association usually has some benefit for the member and so is a business activity, but special rules may apply
patron and supporter schemes - these usually offer benefits and so the minimum amount people have to pay is taxable, but part of that may be zero-rated if publications are included
welfare - welfare services provided by charities and other institutions are normally seen as business activities but are exempt from VAT

More about the VAT treatment of income received by charities in VAT Notice 701/1

Income from fundraising events

If you are a qualifying body - not necessarily a charity - and your event or events meet all the conditions laid down, then income from a fundraising event is exempt from VAT.

Find out how VAT applies to charity fundraising

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Purchases that charities and other bodies can get relief from VAT on

VAT registered charities can reclaim VAT in the same way as other businesses, on purchases they make that relate to business activities that generate taxable supplies.

VAT doesn't need to be paid on certain charity-funded goods and services, as long as they are either bought by a qualifying body, or they're purchased in order to be donated to a qualifying body.

In addition, there are some special reliefs available for charities which mean you don't have to pay VAT on certain goods and services you buy - whether or not you're registered for VAT. You have to provide your supplier with an eligibility declaration that certifies that all the necessary conditions have been met, otherwise you'll have to pay the VAT.

There's more information about these reliefs below, but you can't claim any of them unless we recognise your charitable status.

Are you a charity?

You can't get the reliefs available only to charities unless we recognise your charitable status. You don't necessarily have to be a registered charity, although if you are, we accept that as sufficient evidence.

If you aren't registered with the Charity Commission or the Scottish Charity Regulator, but your charitable status is already recognised by us for taxation purposes, then that's also sufficient evidence for VAT purposes.

If you haven't yet applied to claim the charitable tax exemptions, then you should write to:

HMRC Charities
St Johns House
Merton Road
Merseyside
L75 1BB

You must send us:

the signed and dated governing instrument
details of activities, along with copies of any literature that explains your work
the date on which your accounting period will end

If a charity and its trading subsidiaries are VAT registered it may be possible, under certain conditions, for them to register as a group.

Find out more about registering as a group

Purchase reliefs for charities

If you're a charity, you may be able to buy the following goods and services without paying VAT. The goods or services may have to meet certain conditions, and there may be restrictions on what you can do with them - and in addition, only certain types of organisation may qualify.

Most of these VAT reliefs are not available to subsidiary trading companies, only to charities themselves.

advertising and goods associated with collection donations
aids for the disabled
construction
drugs and chemicals
energy-saving materials
equipment for producing talking books and newspapers
lifeboats and certain associated goods and services
medical and scientific equipment
medicinal products
resuscitation training models

More about what reliefs charities can claim on their purchases in VAT Notice 701/1

Fuel and power

If you are a charity, then fuel and power supplied to you for non-business use, as well as certain related services provided by your fuel or power supplier, attracts a reduced rate of VAT.

If you have premises where you carry out both business and non-business activities, you'll have to provide your supplier with a certificate declaring the percentage of each use.

Find out how to qualify for reduced VAT on gas and electricity used for charity purposes

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VAT reliefs for purchases and sales abroad

Goods purchased from other European Union (EU) countries

If you are a VAT registered charity and you buy goods from other EU countries, 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 apply if you, as a charity, had bought the goods in the UK. Thus, if you buy anything that would be zero rated if bought in the UK, there won't be any VAT due on the purchase.

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 basic necessities for needy people, goods to be used or sold at charity events for the benefit of needy people, or equipment and office materials to help run an organisation for the benefit of needy people.

Find out how charities can import certain goods VAT free

Exports to outside the EU

If you supply goods from the UK to somewhere outside the EU free of charge - for example as relief aid - then we count that as a business activity. It's therefore taxable for VAT purposes, but we've set the rate of VAT at zero. 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.

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VAT exemptions for sport, education and culture

There are special exemptions from VAT for certain services. If you are a qualifying body, and you comply with the somewhat complex rules and conditions for these exemptions, you won't have to charge VAT on these services.

There are exemptions for:

sporting and physical education services
education and vocational training
admission charges to cultural events
youth clubs

You don't necessarily have to be recognised by us as a charity to qualify for these exemptions. There are many other types of body that may qualify.