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

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