VAT Advice for Not-for-Profit Organisations

The VAT People offers a wide variety of services for not-for-profit organisations regarding the complex realm of VAT. Unfortunately, calculating VAT can be incredibly difficult for this type of entity, and mistakes are often made that can prove costly.

The VAT People team has years of experience in helping not-for-profit organisations to work out how much VAT they should be playing, while also providing information on any reliefs available. We are on hand to help with any aspect of this complex process.

Our specialist advisers can provide technical updates, seminars and checklists relating to this topic, which could help your business avoid sanctions from HMRC. Contact us today by calling 0161 477 6600, or fill out an online enquiry form and we will get back to you.

VAT for not-for-profit

Generally speaking, trading activity is known as 'business' within the scope of VAT, while other income - such as grants, donations and legacies - are 'non-business', which is therefore outside the scope of VAT.

Key providers of contracts, such as councils, former PCT and other funders, are moving to change income provided to charities from grants to service level agreements. While a grant is typically money that is freely given to a charity in order to allow them to provide a service, a service level agreement could be seen as a trading activity and therefore 'business' that is within the scope of VAT.

This is an area where the distinction between 'business' and 'non-business' is not particularly clear, which represents a grey area that should be highlighted to not-for-profits.

Reliefs and exemptions

There are a number of specific reliefs from standard-rated VAT that are included in the UK legislation which a not-for-profit entity may be entitled to use when incurring capital expenditure. We have outlined these below:

Building construction

The construction of buildings intended to be used solely for non-business/charitable purposes can be zero-rated, subject to certain criteria being met.

Commercial building to residential use conversion

The VAT liability of converting a building that was formerly used for commercial purposes into a dwelling or a relevant residential purpose building is VATable at 5%. 'Relevant residential purposes' includes home or accommodation for children/students, personal care homes and hospices.

Power and fuel

A not-for-profit business can pay VAT at the reduced rate on fuel and power that is used for non-business purposes. Furthermore, it can pay a reduced rate on maintaining equipment connected with the supply.

This relief applies to non-registered charities, providing charitable status is recognised by HMRC. There are rules on the apportionment of fuel and power used for both non-business and business activities, whether relief can apply to the entire supply.

Relief of this nature extends to the installation of energy-saving materials, such as central heating and insulation in residential accommodation, or in a building used solely for a relevant charitable purpose. Those not-for-profit businesses using electricity or gas wholly or partly for charitable non-business purposes, are also entitled to relief on Climate Change Levy (CCL) from standard to reduced rate.


A charity can zero rate the purchase or hire of some vehicles for their use in the not-for-profit organisation's operations. The rules regarding the use of motor vehicles are quite detailed, so such organisations should look into this.

Contact The VAT People

Not-for-profits looking to discuss VAT with an experienced specialist should contact The VAT People. We can provide advice and guidance on what can be a particularly complicated area. Contact us today by calling 0161 477 6600, or fill out an online enquiry form and we will be in touch.

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