Running a charity comes with its own set of financial complexities, and navigating VAT obligations can often feel daunting. A common misconception among charity leaders is that their organisation is automatically exempt from VAT. However, the reality is far more nuanced.
Here’s what you need to know about VAT for charities in the UK:
While charities do pay VAT on most purchases, they also benefit from a range of reliefs and exemptions that can significantly reduce their tax burden. By understanding these rules, your organisation could potentially save thousands of pounds each year—funds that can be redirected toward advancing your mission.
Before we dive in deeper, if you feel like you need to start from VAT basics, our guide on VAT Explained is an excellent source for beginners.
Do Charities Pay VAT?
However, they can access reduced or zero-rated VAT for specific items that directly support their charitable activities.
Typically, purchases such as office supplies, equipment, and general services are subject to the standard 20% VAT rate. However, charities may benefit from substantial VAT relief on certain items, including advertising materials, aids for disabled individuals, and construction services intended for charitable purposes. By understanding and leveraging these exemptions, charities can maximize financial relief and dedicate more resources to advancing their mission.
Can Charities Claim VAT Relief?
Yes, charities can claim substantial VAT relief on qualifying purchases. There are two main types of relief available:
Reduced Rate VAT (5%)
Your charity benefits from a reduced VAT rate of just 5% on fuel and power when used for the following purposes:
- Residential accommodation, such as children's homes or care homes for the elderly.
- Charitable non-business activities, like offering free daycare services for individuals with disabilities.
- Limited usage, including up to 1,000 kilowatt hours of electricity per month or deliveries of up to 2,300 litres of gas oil.
If less than 60% of your fuel and power usage qualifies under these categories, the reduced rate will only apply to the eligible portion, while the remaining usage will be charged at the standard VAT rate.
Zero-Rate VAT (0%)
Charities may be eligible to purchase certain goods and services without paying VAT, provided specific conditions are met. Common zero-rated items include:
- Advertising materials targeted at the general public, such as newspaper ads, posters, and leaflets
- Medical and disability aids, including wheelchairs, medical devices, and adapted vehicles
- Construction services for new charitable buildings, accessibility ramps, or other adapted facilities
- Equipment used to produce talking books or newspapers
- Rescue equipment and ambulances
- Drugs and chemicals used in medical or veterinary research
Each category has detailed qualifying criteria, so it’s crucial to confirm eligibility before applying for VAT relief.
How Does a Charity Claim VAT Back?
To qualify for VAT relief, your charity must provide suppliers with the necessary documentation to confirm both your charitable status and your eligibility for the relief.
For more generic information about simply “How To Claim VAT?” our full guide here is a good place to start.
What documents do I need to claim VAT for Charities?
- Proof of charitable status: This can be your Charity Commission registration number or a recognition letter from HMRC.
- A written declaration: A statement confirming that your charity meets the specific criteria for the relief being claimed.
While it is the supplier's responsibility to apply the correct VAT rate, they may request additional evidence before granting the relief. Be sure to maintain detailed records of all purchases and VAT relief claims, as these may be subject to review during HMRC inspections.
What Organisations Are Exempt from VAT?
Charities are not entirely exempt from VAT, but certain activities may fall outside VAT registration requirements. Your charity must register for VAT if its taxable turnover exceeds £90,000 within any rolling 12-month period.
That said, charities can choose to register voluntarily even if their turnover is below this threshold. This can be a smart financial decision, particularly when making significant purchases of equipment or services, as it allows you to reclaim VAT on expenses related to taxable activities.
Important note: Community Amateur Sports Clubs (CASCs), while they may serve charitable purposes, are not eligible for the same VAT reliefs as registered charities.
What Is the VAT Threshold for a Charity?
Charities must adhere to the same VAT registration threshold as all other organizations: £90,000 in taxable turnover within a rolling 12-month period.
To determine your taxable turnover, calculate the total value of everything you sell that meets the following criteria:
- It is not exempt from VAT.
- It does not fall outside the scope of VAT.
It's important to note that many common charity activities, such as fundraising events, donations, and grants, are typically outside the scope of VAT and therefore do not contribute to this threshold.
Do Charities Have to Pay VAT on Printing?
Charities often pay standard-rate VAT on general printing services, but some printed materials may qualify for VAT relief:
- Advertising materials aimed at promoting charitable activities to the public can be zero-rated.
- Talking books and newspapers may be eligible for zero-rating on production and equipment costs.
- Educational materials can qualify for relief under certain conditions.
The determining factor is the intended use of the printed materials. General administrative printing is typically subject to standard VAT rates, while materials directly supporting charitable objectives may be eligible for relief. Understanding these distinctions can help charities manage costs more effectively.
Maximise Your Charity's VAT Efficiency
Navigating VAT rules for charities can lead to substantial savings, yet the complexity of these regulations often results in missed opportunities or costly errors. With expert guidance, your organisation can maximise available reliefs while remaining fully compliant with HMRC requirements.
At Debitam, our dedicated team specialises in the unique VAT challenges charities face. We help identify all eligible reliefs, simplify your VAT processes, and ensure seamless compliance with current regulations. Reach out today to see how much your charity could save on VAT.
