VAT (Value Added Tax) rules can be particularly complex for charities and non-profit organisations. While these entities are driven by a mission to help others, they are still bound by certain legal and tax obligations in the UK. One of the most commonly asked questions by charities is: can charities claim back VAT?
In this detailed guide we will unpack everything you need to know about VAT for charities, including VAT exemptions, relief schemes, and the process of reclaiming VAT.
Summary
“This article explores how UK charities can manage VAT effectively, including exemptions, reliefs, and reclaim procedures.”
Do Charities Have to Pay VAT?
Yes, charities are generally subject to VAT just like any other business entity. If a charity’s taxable turnover exceeds the VAT registration threshold of £90,000 (as of 2024), it must register for VAT with HM Revenue and Customs (HMRC).
Once registered, the charity is required to:
- Charge VAT on taxable goods and services
- Submit VAT returns quarterly
- Pay VAT on purchases from other VAT-registered businesses
However, certain VAT reliefs and exemptions are specifically designed to ease the financial burden on charitable organisations.
Summary
“Charities must register for VAT if their taxable turnover crosses the £90,000 threshold, but they can access various reliefs.”
Source: HMRC – VAT for charities
VAT Reliefs Available for Charities
The UK Government provides several VAT reliefs to help charities reduce their operational costs. These reliefs include zero-rated and reduced-rated VAT on specific goods and services.
1. Reduced Rate VAT (5%)
Charities may be charged a 5% reduced VAT rate on:
- Fuel and power for charitable use (e.g., residential homes, care homes, free childcare facilities)
- Small-scale energy consumption (under 1,000 kWh/month or 2,300 litres of gas oil)
However, if energy use is split between charitable and business purposes, the standard VAT rate (20%) applies proportionally.
Summary
“Charities using energy for qualifying purposes can pay a reduced 5% VAT rate, reducing operational costs.”
2. Zero-Rated VAT (0%)
Charities may also purchase some goods and services at zero-rated VAT, such as:
- Medical and scientific equipment
- Advertising and printed materials
- Vehicles used for charitable purposes (e.g., ambulances)
- Building and construction work for charitable use
- Rescue and safety equipment
To qualify, the supplier must receive a signed declaration confirming the charity’s eligibility.
Summary
“Many goods and services purchased by charities can be zero-rated, provided proper documentation is submitted.”
Source: GOV.UK – VAT rates on charitable purchases
VAT Exemptions for Charities
Some activities carried out by charities are VAT-exempt, meaning no VAT is charged or reclaimed on them. These typically include:
- Fundraising events
- Grant-funded education and training
- Donations with no reciprocal benefit
However, exempt activities do not allow input VAT recovery, even if the charity is VAT-registered.
Summary
“VAT-exempt activities help charities avoid charging VAT but also limit their ability to reclaim VAT on related costs.”
Read Our more Detailed Guides on VAT:
Is There VAT on Flowers in the UK?
How to Find VAT Number of a Business?
Is VAT Chargeable on Alcohol in the UK?
Can Charities Claim Back VAT?
This is the core question: can charities claim back VAT?
If the Charity Is VAT-Registered
Yes, if a charity is VAT-registered, it can reclaim input VAT on goods and services used for taxable business activities. This includes standard-rated goods and even some items used in zero-rated or reduced-rated charitable projects.
To reclaim VAT:
- Maintain accurate VAT invoices
- Submit VAT returns using HMRC’s Making Tax Digital system
- Ensure that purchases relate to taxable (not exempt) activities
Summary
“VAT-registered charities can reclaim VAT on eligible purchases used for taxable business or charitable activities.”
If the Charity Is Not VAT-Registered
If the charity is not VAT-registered, it cannot reclaim VAT, even on charitable purchases. This makes VAT relief at the point of purchase (zero-rate or 5% rate) critically important.
Summary
“Unregistered charities can’t claim VAT back but may benefit from reduced or zero VAT rates when buying eligible goods.”
Conditions to Claim Back VAT for Charities
Charities that want to reclaim VAT must meet the following conditions:
- Be VAT-registered with HMRC.
- Be recognised as a charity under UK law (Charity Commission or OSCR in Scotland).
- Purchase goods or services for non-exempt charitable purposes.
- Hold valid VAT invoices.
- Submit VAT returns within the required timeframe.
If these conditions are met, a charity can reclaim VAT up to four years retroactively under certain circumstances.
Summary
“VAT recovery is possible for up to four years if charities meet all HMRC’s eligibility requirements.”
HMRC Guidance on Charity VAT Relief
HMRC offers comprehensive guidance on how charities can navigate VAT. They provide specific VAT notices (like Notice 701/1 and 701/6) that explain how relief applies to different sectors and purchases.
You can explore these notices here:
Summary
“HMRC provides clear VAT guidance for charities, helping them understand how to claim relief and reclaim VAT.”
Important Caution: Reclaiming VAT Incorrectly
If your charity claims VAT relief or zero-rating without eligibility, HMRC may demand repayment, often with penalties or interest.
To stay compliant:
- Keep detailed records
- Regularly review VAT eligibility
- Consult a VAT accountant or advisor
Summary
“Incorrect VAT claims can result in HMRC penalties, so charities must ensure compliance with relief and reclaim rules.”
Summary Table: VAT and Charities
| VAT Element | Can Charity Benefit? | Conditions |
| VAT-Registered Reclaims | ✅ Yes | Must be VAT registered and buy for taxable use |
| VAT-Exempt Activities | ❌ No reclaim | Activities like donations and grants |
| Reduced Rate (5%) Purchases | ✅ Yes | Must be used for charitable purpose |
| Zero-Rated (0%) Purchases | ✅ Yes | Must provide written declaration to supplier |
| Non-VAT Registered Charities | ❌ No reclaim | Can only benefit from upfront VAT relief |
Summary
“This table outlines when and how charities can benefit from VAT relief or reclaim VAT depending on their registration and activity type.”
Final Thoughts: Can Charities claim back VAT
So, can charities claim back VAT? The answer depends on their VAT registration status and how they use the goods or services.
VAT-registered charities can reclaim VAT on eligible purchases, while non-registered ones can only access relief at the point of purchase. Ensuring compliance with HMRC’s guidelines is vital to avoid penalties.
At taxcalculatorsuk.co.uk, we aim to make UK tax matters clearer for everyone, including charities striving to do good. If your charity needs help with VAT returns or eligibility checks, consider seeking professional advice.
Summary
“VAT-registered charities can reclaim eligible VAT, while others benefit mainly from reduced or zero-rated reliefs.”
Frequently Asked Questions (FAQs)
Q1: Can charities claim back VAT without being registered?
No. Only VAT-registered charities can reclaim VAT. Non-registered charities must rely on VAT reliefs at the point of purchase.
Q2: Are donations and grants subject to VAT?
Generally, no. Donations and grants are usually VAT-exempt unless they involve a reciprocal benefit.
Q3: Can charities reclaim VAT on building work?
Yes, if the construction is for a qualifying charitable use and the supplier applies a zero-rated VAT correctly.
Q4: How do I prove my charity is eligible for VAT relief?
Provide a recognition letter from HMRC or Charity Commission and submit a written declaration to suppliers.
The content provided on TaxCalculatorsUK, including our blog and articles, is for general informational purposes only and does not constitute financial, accounting, or legal advice.
You can also visit HMRC’s official website for more in-depth information about the topic.
