Charities have always had challenges with Value Added Tax. There are, however, concessions available to charities which mean that some goods/services are not subjected to VAT, or are subjected to the lower rate of 5%. VAT Can be charitable.
1. Rent – If a landlord charges VAT at 20% (due to the land being Opted to Tax) and the charity uses the building for a relevant charitable purpose e.g. a shop that raises funds by selling donated goods, the charity can certify its use of the building, in writing, and the landlord can exempt the supply. If the building is used for both charitable purposes and non-business purposes then the rent needs to be apportioned.
2. Advertising – The supply of advertising to a charity is zero rated for VAT. The zero rating covers advertisements on any subject, including staff recruitment, appeals for cash donations and volunteers. However, only advertising supplies to the charity can be zero rated, not the charity’s other trading companies.
3. Fuel and Power – If a charity uses fuel and power for non-business activities (usually activities with no charge), this can be supplied at the lower rate of VAT at 5%. If this is over 60% of the total fuel and power usage, then all of the supply can be charged at 5%.
What does this mean to our charity clients?
Any overcharges of VAT from suppliers can be corrected going back 4 years, as long as a credit note is received from the supplier.
Do charities pay VAT on fundraising income?
Not necessarily. As long as the event is advertised as a fundraiser and there are 15 or less events at the same location in a financial year then the income can be treated as exempt from VAT. This exemption applies to charities and their wholly owned trading subsidiaries.