VATCharities

VAT is a complicated tax and can be particularly complex for charities There is a generally held misconception that charities do not have to charge or pay VAT. This is not the case although there are reliefs that charities can take advantage of.

What is a charity?

A body is considered to be a charity if it has charitable status. A non-profit making body does not necessarily have charitable status.

To qualify for VAT reliefs a charity must be:

  • based in the UK, Isle of Man, EU, Iceland, Liechtenstein, or Norway
  • established for charitable purposes only
  • registered with the Charity Commission or corresponding regulator, where required
  • be run by ‘fit and proper persons’
  • recognised by HMRC

 

Income

Charities receive income from a variety of sources, some of which may be liable to VAT if the charity is or should be VAT registered.

Charity income can be split into non-business income and business income.

  • Non-business income: this includes grants and voluntary donations and is outside the scope of VAT.
  • Business income: Although charities may consider that they have no business activities, the definition of business for VAT purposes is governed by specific rules and regulations and is quite broad. This means that an activity performed for the benefit of the community or in the furtherance of charitable aims and objectives, may still be a business activity for the purposes of VAT. Depending upon its nature, business income can be taxable at the standard-rate, reduced-rate or zero rate. In some cases, business income may be exempt from VAT.

Examples of business income commonly generated by charities includes admission to premises, admission to events, advertising services, sales of goods (new and/or donated), catering services, and hiring out rooms and/or buildings.

Charities must monitor their taxable income (standard-rated, reduced-rated, zero-rated) and must register for VAT if it exceeds the VAT registration threshold, currently £85,000, in a rolling 12-month period.

 

Purchases

Many of the goods and services that charities buy will be subject to VAT. A charity that is VAT registered may be able to reclaim some, or all, of this VAT, but should not assume that it is entitled to do so. However, there is relief from VAT on some purchases which allow charities to buy them VAT free regardless of whether they are VAT registered.

VAT relief on the following is available for charities:

  • Advertising and goods connected with collecting donations
  • Aids for the disabled
  • Construction
  • Drugs and chemicals
  • Equipment for producing ‘talking’ books and newspapers
  • Lifeboats, slipways and launching and recovery equipment
  • Medical and scientific equipment
  • Medicinal products
  • Resuscitation training models

Charities claiming relief must usually make some form of eligibility declaration. A supplier is not able to zero rate the supply unless they have verified that the purchaser is a charity and meets the requirements for the applicable relief.

 

Fuel and power

There is no general relief from VAT on supplies of fuel and power to charities. However, charities can be charges the reduced rate (currently 5%) where fuel and power is supplied for their non-business use or is below a monthly de minimis threshold.

Additional VAT Articles

We want to ensure charities understand as much as possible about the VAT reliefs available to them. The rules are complex, and that’s why we welcome you to browse some of our additional supporting articles below, or give us a call if you have a specific query.

 

meeting discussing tax on sale

How the Shorts team can help

If you run or work for a charity, and have questions about VAT, including how much is payable and what reliefs are available to your charity, Shorts has a specialist VAT department to help guide charities through all of the complexities of VAT

Whatever your VAT query involves, get in touch with our team of specialists today

Shorts has more expert tax advisers than any independent firm in our region. Whatever your VAT query, our team is here to help.

The Shorts VAT Team

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