VAT for Charities

Charity employees and trustees often assume that they receive an automatic VAT exemption on all goods and services that they buy/receive.  This is not the case and charities should understand the few concessions in the VAT legislation that can reduce their VAT bills.

1. Renting a building – If a landlord has opted to tax a commercial building a charity can override this option so that VAT is not charged on the rent. This only arises when a charity uses the building for a relevant charitable purpose (not used as an administrative office).
2. Advertising expenses – Advertising that encourages donations to the charitable aims of a charity, from the general public can be zero-rated – VATA 1994, Sch.8, Group 15, Item 8. However, this zero-rating does not apply to business activities of a charity’s trading company.  Zero-rating applies to the design of the advert but not websites.
3. Fuel and power – Supplies of gas and electricity to a charity are subject to 5% for non-business purposes when charged by a fuel supplier. In some instances this can be apportioned according to the amount of fuel used by the charity for differing purposes.  If the qualifying part of the building is over 60% then the entire supply of fuel is 5%.
4. VAT exemption on fundraising income – this exemption also applies to trading subsidiaries of charities (wholly owned). The charity can host up to 15 events of the same type/location in a financial year.  This VAT exemption covers all income generated.

This is just a general outline of some VAT “wins” for charities, but please do contact Hawsons with your specific circumstances.

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