VAT for charities explained

VAT is a complicated area at the best of times and can be particularly complex for charitable organisations. This guide will help you to understand the various VAT implications of running a charity and make sure you stay on the right side of HMRC.

Are charities exempt from VAT?

Charities are not VAT exempt. Just like non-charitable organisations, a charity must register for VAT with HMRC if its VATable sales are over the VAT threshold. You can find out more about registering in our guide on how to register for VAT.

VAT registration for charities

Once it's registered, a charity can charge VAT on goods and services and will be required to submit a VAT return every three months using MTD-compatible VAT software such as FreeAgent. You can use our online VAT calculator to work out how much you should charge.

Even if a charity’s VATable sales are below £90,000 (the VAT threshold as of 1st April 2024), it can choose to register for VAT voluntarily in order to reclaim VAT on its costs from purchasing supplies.

VAT relief for charities

Even if they’re not registered for VAT, charities can ask their suppliers to charge them the reduced rate (5%) or the zero rate (0%) of VAT on certain goods and services, instead of the full 20% that the supplier would charge on these to non-charity customers. Charities are also exempt from paying VAT on qualifying goods that are imported from outside the EU.

It’s important to note that community amateur sports clubs don’t 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 (see below) provided that 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

Important: ‘qualifying fuel and power’ does not include vehicle fuel. It does however include electricity, gas, oil and solid fuels.

In some instances a charity may use the same premises for the reduced-rate activities listed above and for other activities that would normally be charged at the standard rate. If less than 60% of a charity’s fuel and power is being used for the reduced-rate activities, the standard rate of 20% VAT will apply to the remainder. However, if more than 60% of fuel and power is being used for the above the entire supply can be paid at the reduced rate.

Zero rate (0%)

Charities may also qualify for a large number of goods and services at zero-rate VAT, including:

• medical supplies and equipment
• goods and aids for disabled people
• rescue equipment and vehicles, such as ambulances and lifeboats
• scientific equipment
• advertising
• construction and building work

A range of qualifying criteria must be met in order for the zero rate to apply to these goods and services. HMRC provides a complete list of zero-rated goods and services for charities, along with information on the qualifying criteria for each.

VAT on goods from outside the EU

As VAT is a European Union regulation, the criteria above apply when charities import goods and services from within the EU. Goods that charities import from outside the EU can be exempted from duty and VAT, provided that they benefit people in need. Goods that qualify for this exemption are those defined by HMRC as:

• aiding disasters within the EU (HMRC has special procedures for this, so charities should contact them directly on 0300 200 3700)
• basic necessities for those in need, such as food, medicine, clothing and blankets
• goods intended to be sold or used at charity events
• equipment and office materials that are solely for the use of a charitable organisation for the benefit of those in need

There are often questions around the precise interpretation of many of these criteria so you should check with HMRC or your accountant if you have any concerns.

Claiming VAT relief for charities

To be able to purchase the goods and services described above at a reduced or zero rate of VAT, charities should provide their suppliers with evidence of their charitable status. This can include 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. Examples of certification for various goods and services can be found through HMRC.

Online VAT filing with FreeAgent

Depending on the type of charity you operate, FreeAgent could help you get your accounts in order for digital VAT filing with minimal hassle.

Find out more about online VAT filing with FreeAgent.