Charity VAT
VAT compliance and reliefs specific to charities.
Charity VAT is genuinely complex. Charities can access zero-rating on certain goods and services, but partial exemption rules apply where they have both taxable and exempt activities. Many charities pay more VAT than they need to, or fail to reclaim what they are entitled to, because the rules require specific analysis of their income mix.
Zero-rated
Many goods and services supplied to charities
Partial exemption
Applies when charities have mixed activities
£90k
VAT registration threshold (taxable turnover)
The problem
The challenges trustees face.
Partial exemption
Charities that have both taxable and VAT-exempt activities (for example, providing services for a charge alongside free charitable activities) must apply partial exemption. This limits the amount of input VAT they can recover. Getting the partial exemption calculation wrong results in either over- or under-recovery.
Zero-rating conditions
Many goods and services are zero-rated when supplied to charities, but only if the right declaration is in place. Advertising, certain equipment, construction of new buildings and aids for disabled people are examples. Without the correct eligibility declaration the zero rate cannot be applied.
Trading subsidiary structure
Where a charity has a trading subsidiary (for example, to carry out non-primary purpose trading), the VAT position of the subsidiary and the charity must be considered separately. Gift aid payments from the subsidiary to the charity are outside the scope of VAT but the trading activity itself may be fully taxable.
VAT registration decision
Charities below the VAT registration threshold may benefit from voluntary registration if they have significant zero-rated income and incur VAT on their costs. We model the registration position to determine whether it is beneficial.
The work
How we help.
VAT health check
We review your charity's VAT position: registration status, income mix, partial exemption position and zero-rating reliefs being claimed, and identify any over- or under-recovery.
Partial exemption calculation
We calculate and apply the correct partial exemption method, prepare the annual adjustment and ensure input VAT recovery is optimised within the rules.
VAT returns
Preparation and submission of quarterly VAT returns, including Making Tax Digital-compliant digital records and submissions.
FAQ
Common questions
- Do charities have to register for VAT?
- Only if taxable turnover exceeds the registration threshold (currently £90,000). Charitable activities that are exempt from VAT or outside the scope do not count towards the threshold. Many charities are below the threshold and not registered. However, voluntary registration may be beneficial where there is significant zero-rated income and recoverable input VAT.
- What does zero-rating mean for a charity?
- Zero-rating means the supplier charges VAT at 0% rather than the standard 20%. The charity pays no VAT on the purchase but the supplier can still recover input VAT on their costs. It is different from VAT exemption, where no VAT is charged but the supplier cannot recover input VAT either. Qualifying zero-rated purchases for charities include advertising, certain medical and veterinary equipment, and construction of new charitable buildings.
Speak to a charity accounts specialist.
Tell us about your charity, CIC or social enterprise and we will arrange a short introductory call. No obligation.
Other services