Charities

Calculating VAT can be a complicated process for charitable organisations. Therefore, it is no surprise that mistakes are commonly made among charities that fail to recognise they are applicable to many of the same rules as regular businesses.

At The VAT People, we have years of experience in helping charities to understand the VAT process, including providing information on reliefs, and are on hand to help with any aspect of this complicated area. We can provide checklists, technical updates and seminars relating to this topic, helping you to avoid sanctions from HMRC.

We can also provide a ‘health check’ service, which ensures your organisation is paying what it needs to, as well as making the most of any relief. Speak to our experienced team today for more information by calling 0161 477 6600, or fill out an enquiry form on this page and we will get back to you at a more convenient time.

Watch our video to find out more VAT advice for Charities

What is a charity?

Defining what a charity is for VAT purposes is not always straightforward. To qualify as a charity, the organisation must do one of the following and either be registered with the charity commission or be accepted as a “charity” for tax purposes by HM Revenue and Customs:

• Provide poverty relief
• Advance education
• Advance religion
• Provide community benefits

Many charities of varying sizes are unaware that they should be paying VAT at all due to the nature of their work. However, because an activity is deemed charitable, it does not necessarily mean that it falls outside the VAT system.

Do charities need to register for VAT?

Many charities believe they are exempt from registering to make VAT payments, and while this is true for some, the rules do not apply to all. A charity must register for VAT if taxable turnover is more than £83,000 in any rolling twelve month period. However, you can also choose to register if the figure stands below this, for example, if you want to reclaim some of the VAT incurred by the charity on expenditure.

If you are registered for VAT, you are required to submit an electronic return every three months.

If you are unsure of how to work out your taxable turnover, add up the total value of everything you sell within a 12-month period that is not:

• Exempt from VAT
• Outside the scope of VAT

Are all charities VAT exempt?

VAT exemption for charities depends on factors such as the goods and services purchased and if they can prove that they are eligible for relief to the person selling them. We can provide support and advice on the VAT exemption rules for charities. That includes what VAT relief your charity may be entitled to and what can charities claim back VAT, freeing up more time for your organisation to focus on what matters.

Charities pay VAT on all standard-rated goods and services purchased from VAT-registered businesses. You may pay VAT at a reduced rate of 5%, or the ‘zero rate’ on some goods and services.

Your organisation will pay 5% VAT on fuel and power if they are for:

• Residential accommodation - such as a care home or children’s home
• Charitable non-business activities - such as free daycare for disabled people
• Small-scale use - such as up to 1,000 kilowatt hours of electricity per month, or a delivery of 2,300 litres of gas oil

If less than 60% of the fuel and power is for something that qualifies for relief, you will pay the reduced rate of VAT on the qualifying part, and the standard rate of 20% on the rest.

Can charities claim back VAT on purchases?

What can charities claim back? VAT can be claimed back on certain purchases, but the ability to do so depends on several factors. If your charity is registered for VAT, you can reclaim VAT on goods and services used to make taxable supplies. This process helps reduce costs and ensures more funds are available for your charitable activities.

However, not all purchases qualify for VAT recovery. For instance, VAT on goods or services used in carrying out exempt or non-business activities cannot be reclaimed. It’s essential to differentiate between taxable and non-taxable activities within your organisation to determine what VAT you can recover.

Maintain accurate records of your purchases and understand the specific VAT rules. Our consultancy provides expert guidance to help you adhere to these rules, ensuring that your charity maximises its VAT recovery potential while staying compliant with HMRC regulations. We’re here to assist you in making informed decisions that benefit your organisation’s financial health.

Are registered charities exempt from VAT?

Registered charities do not automatically receive full exemption from VAT. While certain goods and services qualify for VAT relief, many transactions still require VAT payment. Charities must carefully assess their activities and understand which supplies attract VAT.

For example, if your charity purchases standard-rated goods or services from VAT-registered businesses, you must pay VAT. However, specific exemptions apply, such as for advertising services or certain aids for disabled individuals. Knowing these exemptions allows your charity to make informed decisions and potentially reduce VAT costs.

If your charity is registered for VAT and meets the necessary conditions, you can also reclaim VAT on certain expenses. However, this requires careful record-keeping and a clear understanding of VAT rules. Our consultancy offers expert guidance to ensure your charity remains compliant while optimising its VAT position.

We understand that VAT regulations can be complex, and we're here to help you deal with them efficiently and correctly. Whether you need advice on specific transactions or comprehensive VAT management, our team provides tailored support to meet your charity's needs.

Qualifying for the zero rate

There are a number of conditions your charity must meet before qualifying for the zero rate of VAT on certain goods and services. Knowing which reliefs apply to which service can be complicated, so speaking to a VAT expert is recommended.

Our qualified team can help you to determine where you could benefit from the zero rate, allowing you to focus more on raising money for your chosen cause.

Although this list is not exhaustive, the following supplies will potentially qualify for VAT at the zero-rate when they are acquired by a charity:

• Advertising services.
• The construction or purchase of new charitable buildings.
• Certain aids for disabled persons.
• Charity funded equipment for medical or veterinary use.