VAT for Charities: Reliefs, Exemptions & When to Register

Quick answer: Charities are not exempt from VAT as organisations. They follow the same rules as any other body: they must register once VAT taxable turnover passes £90,000, and they pay 20% VAT on most standard-rated purchases. What is special is a set of targeted reliefs — zero-rated advertising, disability aids, qualifying construction and donated-goods sales, plus 5% fuel and power in some cases — and exemptions for activities such as fundraising events and welfare services. Donations where nothing is given in return sit outside the scope of VAT altogether.

The one misconception to drop first

Ask "are charities VAT exempt?" and the honest answer is no — but it is a no with important qualifications. A charity is not a VAT-exempt person; it is a taxable person like any other once it makes taxable supplies, and it can be unregistered, registered, or partly exempt depending on what it does. HMRC's guidance for charities (VAT Notice 701/1) treats the question supply by supply, not organisation by organisation: one charity can in a single year receive outside-scope donations, run an exempt fundraising ball, sell zero-rated donated goods, and make standard-rated advertising sales — each treated differently.

That is why generic advice ("charities don't pay VAT") is dangerous: true for some purchases and activities, flatly wrong for others. Get the classification wrong and the charity either overpays avoidable VAT or underpays VAT HMRC will eventually ask for, with interest.

Three buckets: outside scope, exempt, and taxable

Every pound coming into a charity falls into one of three buckets — and only the third counts towards the £90,000 threshold.

Outside the scope of VAT. Income from non-business activities is outside the scope: no VAT is charged and none can be reclaimed on related costs. The classic example is a donation where nothing is given in return. Grants can also be outside the scope where genuinely given without a supply in return — but a grant obliging the charity to provide a specific service to the funder may be a taxable supply instead, so the funding agreement's wording matters.

Exempt supplies. Exempt means no VAT is charged to the customer, but the charity cannot reclaim the VAT on the costs of making that supply. Exempt charity activities include welfare services and goods and services supplied in connection with spiritual welfare, education and vocational training supplied by an eligible body, and fundraising events that meet the conditions (see below). Membership subscriptions can also be exempt where they are linked to charitable benefits. Crucially, exempt income does not count towards the £90,000 threshold — only taxable turnover does.

Taxable supplies. These are charged at 20%, 5% or 0%, and they do count towards the threshold. A charity shop selling bought-in (non-donated) goods, a charity selling advertising space to a business, or a charity charging for consultancy are all making taxable supplies, even if the profits are applied charitably. Zero-rated supplies are still taxable supplies — the rate is 0%, not "no VAT at all" — which matters twice over: they count towards the threshold, and a VAT-registered charity can reclaim the input VAT on their costs.

Our zero-rated vs exempt VAT guide explains the reclaim difference — the distinction that costs charities the most when misunderstood.

When a charity must register for VAT

The rule is the same as for any business. A charity must register if its VAT taxable turnover — taxable supplies including zero-rated ones, excluding exempt and outside-scope income — is more than £90,000 in a rolling 12-month period, or if it expects to pass £90,000 in the next 30 days alone. The charity must notify HMRC within 30 days of becoming liable.

Voluntary registration is also available below the threshold, and for some charities it is worth real money: a registered charity can reclaim input VAT on purchases used for its taxable activities. The trade-off is compliance — quarterly VAT returns, proper VAT invoices, and a partial-exemption calculation if it also makes exempt supplies. A charity whose income is almost entirely donations and exempt events will usually gain little, because there is almost no input VAT to reclaim; one with a large taxable trading arm may gain a lot. Our when to register for VAT guide works through the rolling-12-month and 30-day tests, and our how to file a VAT return guide covers the nine boxes.

Reliefs on what a charity buys

Charities pay 20% on most ordinary purchases — stationery, IT, professional fees. The reliefs are specific, each with its own conditions, and apply whether or not the charity is VAT-registered.

Zero-rated purchases. The main reliefs cover advertising and items for collecting donations; aids for disabled people and goods for their personal or domestic use; construction services for qualifying charitable buildings; medical, veterinary and scientific equipment; drugs, chemicals and medicines; talking-book equipment; lifeboats and associated equipment including fuel; resuscitation training models; ambulances; and vehicles designed or adapted for disabled people. Advertising is the most widely used: it is zero-rated on any subject, including staff recruitment, so a £5,000 campaign that would carry £1,000 of VAT at 20% costs £5,000 flat. Pre-printed collecting boxes, appeal letters and envelopes, and low-cost lapel stickers, emblems and badges given in acknowledgement of a donation can also be zero-rated.

Fuel and power at 5%. A charity pays 5% on fuel and power used for residential accommodation (for example a children's home), for charitable non-business activities (for example free daycare for disabled people), or in small quantities — up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil. Where less than 60% qualifies, the qualifying part is charged at 5% and the rest at 20%, so a mixed-use building needs an apportionment.

Construction. Work on a building used for a relevant charitable purpose can be zero-rated, but the conditions are strict: the building must be intended solely for a qualifying charitable purpose, and the charity must give the contractor a certificate confirming that use. Get the certificate wrong and the contractor must charge 20% — £20,000 on a £100,000 build.

Imports. Charities do not pay VAT on imported goods benefiting people in need — basic necessities, running-the-organisation equipment and materials, or goods for charity events.

How to claim the relief. The charity must prove eligibility to the supplier: evidence of charitable status — a Charity Commission registration number, or, for Scottish and Northern Irish charities, an HMRC letter of recognition — plus a written eligibility declaration or certificate confirming the relief applies. For zero-rated supplies the declaration is mandatory: without it, the supplier must charge VAT. Keep copies of every declaration given.

Fundraising events: the exemption and its conditions

Fundraising events held by charities and other qualifying bodies are exempt from VAT under Group 12 of Schedule 9 to the VAT Act 1994, provided the event meets the conditions. In outline, the event must be organised by the charity (or its trading subsidiary) for the charity's benefit — a ball, a gala dinner, a fete. Simply selling goods is not an event, even if all proceeds go to the charity; goods sold in the context of a qualifying event are covered, and zero-rated goods sold there stay zero-rated.

The consequences cut both ways. An exempt event means no VAT on tickets — a £100 gala ticket is £100. But the charity cannot reclaim VAT on the event's costs: a £6,000 catering bill carrying £1,000 of VAT is a £6,000 cost, not £5,000 with £1,000 reclaimed. For a big event that blocked input VAT can be the largest cost line.

Charity shops and donated goods

The sale of donated goods by a charity is zero-rated — one of the sector's most valuable reliefs, and most commonly half-understood. It applies where donated goods are sold to the general public, including at auction (provided access is open to the public) and on stalls at other events. Goods too poor to sell, or unsaleable under trading-standards rules such as electrical safety, can be sold to scrap merchants at the zero rate as well.

The boundary matters: goods bought in to sell are not donated goods, so a shop selling bought-in stock charges VAT at the normal rate (20% for most goods), and those sales count towards the threshold. A shop mixing the two must keep them separate in its records. The same applies online: donated goods sold through the charity's website or a marketplace listing are still zero-rated, provided the conditions are met.

Reclaiming VAT: registered, unregistered, and partly exempt

If the charity is VAT-registered, it reclaims input VAT on purchases used for its taxable supplies through its quarterly return, and cannot reclaim input VAT on purchases for exempt supplies or non-business activities. Where a cost serves both — rent, accountancy, IT — the charity is partly exempt and must apportion the input VAT, typically under the standard method, with a de minimis test that can allow full recovery where the exempt input VAT is small. Take professional advice before filing a partly-exempt return.

If the charity is not VAT-registered, it cannot reclaim VAT through a return — but it still benefits from the zero-rate and reduced-rate reliefs above, which do not depend on registration. "Unregistered" does not mean "pays 20% on everything".

Section 33 bodies are the exception. A narrow list of specified bodies under section 33 of the VAT Act 1994 — including certain national museums and galleries — can reclaim VAT on non-business purchases even though unregistered, by making a section 33 claim. Ordinary charities are not section 33 bodies and cannot use this route.

Worked examples

Example 1 — the advertising saving. A hospice charity spends £12,000 on a recruitment and appeal campaign. Without relief, VAT at 20% would add £2,400, for a £14,400 bill. With a zero-rate eligibility declaration given to the agency, the bill is £12,000 — a £2,400 saving for one form.

Example 2 — the threshold test. A charity's annual income is £140,000: £70,000 in donations, £25,000 from an exempt fundraising ball, £30,000 from donated-goods shop sales (zero-rated, therefore taxable) and £15,000 from selling advertising space (standard-rated, taxable). Its VAT taxable turnover is £30,000 + £15,000 = £45,000 — well below £90,000, despite total income of £140,000. Only taxable streams count.

Example 3 — the blocked input VAT trap. The same charity runs a larger ball with £24,000 of ticket income (exempt) and £6,000 of catering costs including £1,000 of VAT. Because the event is exempt, the £1,000 cannot be reclaimed. Wrongly treating the tickets as taxable would mean reclaiming £1,000 it was not entitled to — owed back with interest when HMRC corrected the return.

Example 4 — fuel apportionment. A day centre uses 40% of its gas for free daycare for disabled people (qualifying) and 60% for fee-charging commercial hire. Because less than 60% qualifies, only the qualifying 40% is charged at 5%; the rest is charged at 20%. On a £1,200 net quarterly gas cost split £480/£720, the VAT is £480 × 5% = £24 plus £720 × 20% = £144, for a £1,368 total — not 5% on the whole bill.

Common mistakes charities make

1. Assuming the charity is "VAT exempt" and ignoring registration until HMRC writes — monitor taxable turnover monthly.
2. Counting donations and exempt event income towards the £90,000 threshold, and registering years too early.
3. Forgetting the eligibility declaration, so a supplier charges 20% on advertising or equipment that should have been zero-rated.
4. Reclaiming input VAT on exempt-event costs or non-business purchases, creating a repayment liability.
5. Mixing donated and bought-in shop stock in one sales figure.
6. Treating a trading subsidiary as if it shared the charity's reliefs — it is a separate taxable person; its profits reach the charity by Gift Aid donation, not by VAT relief.

Frequently asked questions

Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.