Understanding VAT rates, as well as where you may qualify for certain relief funds, can be difficult, especially for charities.
To make sure your charity organisation isn’t paying out more than it should, we’re here to explain the rules, regulations, and application process.
By the end of this blog, you’ll know whether charities are exempt from VAT, if charities can claim back VAT, and the different types of VAT relief available
Are Charities Exempt from VAT?
The simple answer is: no, charities are not exempt from VAT payments.
Just as non-charity organisations must pay VAT on qualifying items, charities are also required to register and pay VAT for eligible items that go over the threshold set out by HMRC.
However, the real answer is slightly more complex than that. While charities are required to pay VAT, they may be eligible for VAT relief on select qualified items. This still requires them to pay VAT, but potentially at a reduced rate for certain goods.
We know VAT for charities isn’t quite straightforward – our Charity Accountants make it all simple. Get in touch with us today to see how we can help you.
What Qualifies as a Charity?
To qualify for VAT relief, you must be a registered charity with either the Charity Commission or HMRC for tax purposes.
Charities must operate specifically for the benefit of the public, rather than for the benefit of individuals, trustees, or employees.
As a charity, your main goal must be to support a cause that’s recognised as charitable. Animal welfare, education, health, the underprivileged, or religion are all common examples of what is classified as ‘charitable’.
When it comes to tax purposes, HMRC sets out that to be recognised as a charity, you must be:
- UK based
- Established for charitable purposes
- Registered with the Charity Commission
- Run by ‘fit and proper’ persons
You can find out more about whether your organisation qualifies as a charity on the UK Government website.
Types of VAT Relief for Charities
While you do need to pay VAT as a charity, you may be able to claim relief funds on certain eligible goods.
There are two types of relief funds available – reduced rate and zero rate. Plus, you can also claim select goods VAT-free when they meet specific criteria defined by HMRC.
Reduced Rate
Instead of the standard rate of 20%, charities can pay the reduced rate of 5% on fuel and power.
Not all charities are eligible for the reduced rate, and not all types of fuel or power fall into this category. For example, petrol isn’t eligible for the reduced rate, but electricity, gas, solid fuels, and oil are.
To apply for the reduced rate, the resources need to be used for:
- Charitable activities, such as free childcare
- Providing accommodation at a residential facility, like a care home, hospice, or children’s home
- Activities unrelated to business
Plus, there’s a use limit on reduced VAT for charities to keep in mind as well. For energy, the limit is 1,000 kilowatts, while gas has a limit of 2,300 litres.
Zero Rate
As a charity, you may also qualify for a 0% VAT rate on a range of goods and services.
In order to access this zero-rate VAT for charities, you must meet a set of criteria. The criteria change depending on the type of equipment you buy and what it’s used for. Some of the product categories include:
- Aid or goods for disabled people
- Ambulances
- Medicine
- Ingredients for medicine
- Equipment for medical, veterinary, or scientific purposes
- Rescue equipment
For more information on what qualifies for relief, head over to the UK Government website. Here, you’ll find a full list of the items eligible for a zero VAT rate.
Imported Goods
Charities aren’t required to pay VAT on goods imported from outside the UK. However, this only applies if they’re being used to benefit people.
If you’re a non-profit making organisation with a focus on helping those in need, you may be able to claim relief on items, such as:
- Relief for Basic Necessities: This includes items like food, clothing, or blankets, as well as medicines, orthopaedic equipment, or crutches. Plus, you can also claim relief on any goods purchased to deal with disasters in the UK.
- Relief for Equipment and Office Supplies: Any machines, tools, equipment, or office materials purchased for the everyday running of your charity may be eligible for relief. To qualify, the goods must have been purchased solely to help your charitable organisation run and have no commercial intent.
- Relief for Goods Used or Sold at Charity Events: If you pick up goods with the intent to sell them to raise funds at a charity event, then you may be able to apply for relief on these items. Similar to the above, these must have no commercial intent.
There are some goods you can’t claim relief on, and these include items such as alcohol, alcoholic products, or tobacco, as well as tea and coffee. You can’t claim relief on items for worship, such as statues or pulpits. Plus, vehicles other than ambulances don’t qualify either.
How To Apply for Charity VAT Relief
Claiming charity VAT exemption, you need to be able to provide your supplier with evidence that you’re a charity, as well as proof you’re eligible for relief.
Evidence of your charitable status can come in the form of either your Charity Commission registration number or a letter of recommendation from HMRC. For those based in Scotland or Ireland, you need to have a letter from HMRC to prove your status.
When purchasing goods, you need to show the supplier an eligibility declaration or certificate to qualify for VAT relief. Different goods require different certifications, which the UK Government provides on their website.
DH Business Support Makes VAT Relief Simple
Here at DH Business Support, we’re passionate about making your business simple, stress-free, and successful.
We know VAT for charities can feel confusing, especially with so many different rules and regulations to be aware of – that’s where we come in. Our team provides straightforward, honest tax advice to make running your business or charity simple.
Get in touch with us today to see how we can help you! You can contact us by phone on 0330 088 1701 or send an email to hello@dhbusinesssupport.com. Alternatively, fill out our online contact form or start a live chat by clicking the ‘chat with an expert’ button anywhere on our site.