Your questions answered on Charity VAT

Q – “I’m a charity, do I have to pay VAT?“
A – Yes, A charity will pay VAT on all standard-rated goods and services they buy from VAT-registered businesses.

However, for certain good and services, charities pay VAT at a reduced rate (5%) or the ‘zero rate’.
– your charity pays 5% VAT on fuel and power if they’re for residential accommodation, charitable non-business activities or small-scale use.
– examples where your charity pays no VAT includes advertising and items for collecting donations and aids for disabled people. Note conditions apply to zero-rated purchases.

To claim VAT relief, you do not need to be registered for VAT. However, you must give your supplier i) evidence that you’re a charity, and ii) a written declaration or ‘certificate’ confirming that you’re eligible for the relief.

Reference The Charity Commissions guidance: https://www.gov.uk/vat-charities

Q – I’m a charity, do I need to register for VAT?
A – As a charity, you must register for VAT with HM Revenue and Customs (HMRC) if your VAT taxable turnover is more than £85,000.

You can choose to register if it’s below this, for example to reclaim VAT on your supplies. If you’re registered for VAT you must send a return every 3 months.

VAT taxable turnover can be calculated as the total value of everything you sell that isn’t exempt from or outside the scope of VAT.

Q – “What qualifies for the reduced VAT rate?“
A – Fuel and power qualifies for the reduced rate of 5%.

Your charity pays 5% VAT on fuel and power if they’re for:
residential accommodation (for example, a children’s home or care home for the elderly)
– charitable non-business activities (for example, free day care for the disabled)
– small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil)

If less than 60% of the fuel and power is for something that qualifies, you’ll pay the reduced rate of VAT on the qualifying part and the standard rate (20%) on the rest.

Note – qualifying fuel and power includes gases, electricity, oils and solid fuels (such as coal). It does not include vehicle fuel.

Q – “What qualifies for zero rate VAT?”
A – There are several categories of expenditure which can qualify for zero rate VAT. However, you should check the Charity Commission guidance for the conditions you must meet so to pay no VAT.
– advertising and items for collecting donations
– aids for disabled people
– construction services
– drugs and chemicals
– equipment for making ‘talking’ books and newspapers
– lifeboats and associated equipment, including fuel
– medicine or ingredients for medicine
– resuscitation training models
– medical, veterinary and scientific equipment
– ambulances
– goods for disabled people
– motor vehicles designed or adapted for a disability
– rescue equipment

https://www.gov.uk/vat-charities/what-qualifies-for-relief

Q – “How can I claim VAT relief?”
A – You must be able to evidence you are a charity and that you’re eligible for the relief.

To get VAT relief you must give your supplier:
1) evidence that you’re a charity. This can be either your…
– Charity Commission registration number
– letter of recognition from HM Revenue and Customs (HMRC)
(Scottish and Northern Irish charities must provide their letter of recognition from HMRC)

2) a written declaration or ‘certificate’ confirming that you’re eligible for the relief
– you must give your supplier an eligibility declaration or certificate when they sell you goods or services at zero rate VAT.
– if you’re buying building or construction services at zero VAT, the certificate must follow a set format.
– the written declaration or certificate should be separate from the order form or invoice for the goods or services your charity is buying.

Q – “What activities are exempt from or outside the scope of VAT?“
A – You can not charge VAT on exempt goods and service. Income from non-business activities is considered outside of scope.

You can’t charge VAT on exempt goods and services (such as the provision of welfare services). You can’t normally reclaim VAT on any goods and services purchased in relation to an exempt business activity.

Note – you can’t register for VAT if all your business activities are exempt from VAT.

Income from non-business activities is ‘outside the scope’ of VAT (you can’t charge or reclaim VAT on them). This includes:
– donations where nothing is given in return
– grant funding given to support your charitable activities where nothing is given in return
– activities where your organisation doesn’t make a charge