Charities - Available VAT Reliefs on Purchases

Certain purchases made by registered charities become liable to the zero or reduced-rate, whereas when purchased by a business, these would often be liable to the standard rate, however, the VAT reliefs charities can claim are limited in scope. This guide outlines the main areas where these reliefs are available, helping you understand how VAT applies to your organisation can help reduce costs and improve compliance.

This guide also explains how your charity can optimise its VAT position and reduce irrecoverable input VAT, while remaining compliant with VAT law.

Do all charities pay VAT?

Charities are not automatically exempt from paying VAT on purchases, and are required to pay VAT on the goods and services they purchase in the same manner as a commercial entity. Whether a charity is able to reclaim VAT as input tax is dependent on whether it is incurred on the course of making onward taxable business supplies, on which it will charge output VAT at the appropriate rate.

The VAT registration threshold is currently £90,000, which applies equally to charities and non-charitable organisations. This means that if a charity’s taxable turnover exceeds the VAT threshold of £90,000 in any 12-month rolling period, it must register for VAT and charge VAT on its taxable supplies, regardless of its charitable status.

Charities that are not VAT-registered cannot reclaim any VAT incurred on their purchases, even where those costs relate to charitable objectives. However, VAT-registered charities may be able to recover input VAT on costs directly linked to their taxable business activities, subject to the usual partial exemption and rules for VAT in relation to business vs non-business activities.

Do charities pay VAT on rent?

The rental of commercial property is exempt from VAT unless the supplier of the property opts to tax the land or buildings – this has the effect of ensuring all supplies of opted commercial property are taxable at the standard rate. Under the VAT Act 1994, if a building is used for a relevant charitable purpose (RCP), the charity may be able to disapply the landlord’s option to tax. This means that the rent can be treated as exempt from VAT rather than standard rated.

To qualify, the premises must be used solely or mainly for the charity’s non-business activities - for example, for delivering charitable services to beneficiaries. If more than 5% of the building is used for administrative purposes, such as office work, this will not apply. In those cases, the charity would be liable to pay VAT on the rent charged by the landlord.

Where the circumstances are met for the suppliers’ option to disapply, the charity must provide a written certificate to the landlord confirming the intended use of the premises. The correct application of this guidance can reduce overhead costs and help charities remain compliant with HMRC’s rules.

Do charities pay VAT on purchases?

Charities are generally required to pay VAT on standard-rated goods and services purchased from VAT-registered suppliers. However, there are specific circumstances where a reduced or zero rate of VAT may apply, depending on the nature of the goods or services and how they are used.

Reduced rate of 5% VAT

Charities may qualify for the reduced 5% VAT rate on fuel and power when the supply is for:

• Residential accommodation, such as care homes or children’s homes.
• Charitable non-business activities, such as the provision of free daycare for disabled individuals.
• Low levels of usage - for example, up to 1,000 kilowatt hours of electricity per month or 2,300 litres of gas oil per delivery.

If 60% or more of the fuel and power is used for a qualifying purpose, the entire supply is charged at 5%. If under 60% qualifies, then the qualifying portion is charged at 5%, and the remainder at the standard 20% rate. Qualifying fuels include gas, electricity, heating oil, coal, and similar sources - but not vehicle fuel.

Zero-rated purchases

Charities may also be eligible for zero rating in certain cases. This removes VAT entirely from the purchase of specific goods and services, including:

• Advertising and materials used to collect donations.
• Scientific, medical or veterinary research.
• Aids and goods for disabled people, including specially adapted motor vehicles.
• Equipment used to produce ‘talking’ books and newspapers.
• Lifeboats, rescue equipment, and associated supplies such as fuel.
• Construction services for buildings used solely for charitable purposes.
• Drugs, chemicals, and medical products used for treatment.
• Resuscitation training models.
• Ambulances.

Eligibility must be clearly evidenced, and suppliers may require a valid zero-rating certificate. Taking advantage of these reliefs can reduce your charity’s VAT costs and help you allocate more funding to charitable activities.

Do charities pay VAT on building work?

Charities may be eligible for zero-rated VAT on certain building works carried out for the benefit of people with disabilities. Relief is available when the work is directly linked to improving accessibility or facilities within charity premises used for a relevant charitable purpose.

Zero-rating can apply to:

• Constructing or adapting ramps, widened doorways and accessible passageways.
• Installing or adapting bathrooms, washrooms or toilets in buildings used for charitable activities.
• Installing, repairing or maintaining lifts in qualifying charity buildings.
• Necessary preparation or restoration work directly linked to the qualifying building adaptations.

To claim VAT relief at zero rate, the building must be used solely for a charitable purpose, and the works must meet the specific conditions set out by HMRC. A written declaration is typically required before the zero rate can be applied.

In addition to these works, the construction of buildings intended to be used solely for non-business purposes, or as a village hall or similar, can be zero-rated subject to certain criteria being met.

Do charities pay VAT on advertising?

Charities may qualify for zero-rated VAT on advertising, provided the content is aimed at the general public and not directed at individuals. This applies across a range of advertising formats, including traditional print, outdoor media, TV, and radio, where the message is intended for a broad audience.

Digital advertising can also fall under the zero rate, depending on how the advert is targeted. Where the campaign targets groups rather than identifiable individuals, and all HMRC conditions are met, zero rating may be available.