Charities and VAT 

 

VAT Registration

Charities are not exempt from VAT, as with all non-charitable organisations, if its VATable sales exceed the VAT threshold (currently £85,000), a charity must register for VAT with HMRC.  

Alternatively, if its sales are below the threshold, a charity can still choose to register for VAT in order to reclaim VAT on its costs. 

Following VAT registration, a charity must charge VAT on VATable goods and services and will be required to submit a VAT return every three months using an MTD-compatible VAT software.   A list of compatible software can be found on the HMRC website. 

 

VAT Relief 

All charities (whether VAT registered or not) can ask their suppliers to charge them the reduced rate (5%) or the zero rate (0%) of VAT on certain goods and services.  Non-Charity customers would be charged the full 20%. 

Charities are also exempt from paying VAT on qualifying goods that are imported from outside the EU.

However, community amateur sports clubs do not qualify for the same VAT reliefs and exemptions as charities.

Reduced rate (5%) on fuel and power

Charities pay the reduced rate of 5% VAT on qualifying fuel and power, this includes electricity, gas, oil and sold fuels, but not vehicle fuel.  The reduced rate is only applicable if the resources are used for:

  • charitable non-business activities, such as providing free childcare
  • providing residential accommodation, such as a care home, children’s home or hospice
  • small-scale use: up to a maximum of 1,000 kilowatt hours of electricity or delivery of up to a maximum of 2,300 litres of gas oil

Where a charity uses the premises for both a qualifying activity and other activities which would normally be charged at standard rate, if less than 60% of the fuel and power is being used for something that qualifies, they will pay the reduced rate of VAT on the qualifying part and the standard rate (20%) on the rest.  

 

Zero rate (0%)

Certain goods and services are zero-rated or reduced-rated when bought by charities, regardless of whether the charities are registered for VAT or not.  The goods and services include:

For each of these reliefs specific conditions have to be met. HMRC provides a complete list of the goods and services along with the qualifying criteria for each on their website. 

Charities that wish to utilise these reliefs must provide their suppliers with eligibility declarations certifying that the conditions have been met for that relief. 

 

VAT-free goods from outside the UK

Charities do not pay VAT on goods imported from outside the UK as long as they are benefiting people in need by providing:

  • basic necessities
  • equipment and office materials to help run your organisation for the benefit of people in need
  • goods to be used or sold at charity events

Before you claim you should check if your goods are strictly controlled and if you will need an import licence.

The HMRC website has full details of goods you can claim relief for, and what the qualifying requirements are. 

 

Claiming VAT relief for charities

In order to purchase the goods and services described above at a reduced or zero rate of VAT, charities must provide their suppliers with evidence of their charitable status, for example, a letter of recognition from HMRC or a Charity Commission registration number for charities in England and Wales.

A certificate of declaration that confirms your eligibility for relief may also be used in some circumstances.

 

Further Information

Full details on registering for VAT and all reliefs available together with the requirements for each and how to apply can be found on the HMRC website:

https://www.gov.uk/vat-charities

Published
3rd September 2021