Calculating VAT can be an incredibly 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 navigate the complicated 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 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 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 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

Do charities get VAT relief?

Charities do not pay VAT when purchasing certain goods and services, but need to be able to prove that they are eligible for relief to the person selling them. We can provide support and advice on every aspect of VAT relief, 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, you will pay the reduced rate of VAT on the qualifying part, and the standard rate of 20% on the rest.

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 particularly 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.

How to claim VAT relief

In order to claim VAT relief, you must provide the following to your supplier:

  • Evidence that you are a charity
  • A written declaration confirming that you are eligible for the relief

Evidence you are a charity can be provided in the following ways:

  • Your Charity Commission registration number
  • A letter of recognition from HMRC

How we can help

In the past, many of our clients have benefited extensively from our VAT health check, which helps to ensure they are not making any potentially expensive mistakes. We can help you in the same way.

Contact us with any charity related queries – we are happy to help. Don't forget our free helpline which is available to all on 0161 477 6600, or complete our contact form at the side of the page with any other queries.