Charities ― overview

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Charities ― overview
Meaning of charity
Business / non-business for charities
Supplies for consideration ― grants, donations and sponsorship
VAT registration for charities
Liability of common supplies made by charities
VAT recovery and reliefs on purchases for charities
Contacting HMRC with charity VAT queries

This guidance note provides an overview of the main VAT issues that need to be considered by a charity. Charities are often faced with a number of complex VAT considerations. In particular these will include:

•whether they make supplies in the course or furtherance of business
•whether the income they receive is consideration for a supply
•the VAT liability of the supplies they make
•the extent to which they are entitled to recover the VAT they incur on costs
•whether they are entitled to charity VAT reliefs on their purchases

Meaning of charity

Charities are bodies with charitable status. Charitable status does not apply to all non-profit making bodies so it is important not to assume that all non-profit organisations will qualify for VAT relief targeted at charities.

Notice 701/1 , para 2; VCHAR2200

In order to claim charity VAT reliefs, HMRC expects the following conditions to be met:

•the charity must be based in the UK, Isle of Man, another EU member state, Iceland, Liechtenstein or Norway
•the charity must be established for charitable purposes only
•the charity must be registered with the Charity Commission or corresponding regulator, where required
•the charity must be run by ‘fit and proper persons’
•the charity must be recognised by HMRC (charities can apply for recognition on the GOV.UK website)

Notice 701/1 , para 2.1

From 1 April 2012, the definition of charity in FA 2010, Sch 6 (subscription sensitive) has broad effect for the purposes of VAT.

SI 2012/736, arts 1, 5 (subscription sensitive).

Trading subsidiaries

Charities are entitled to conduct