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.