VAT for Charities

VAT and Charities in Bath R D Owen and Co

Contrary to popular belief, there is no general VAT-free status for charities under the VAT legislation - although charities and not-for-profit organisations do benefit from certain exemptions. Therefore, charities of all kinds need to take specialist advice to ensure that they do comply with all the VAT regulations and account for VAT correctly. R D Owen and Co can advise you on achieving this.

Charities that run a business activity that earns them income have the same rules applied to them as any other business: if the income from the business activities reaches the VAT registration limit then the charity must register for VAT. Note that this is only for business income, any non-business income such as donations can be ignored when looking at the income for registration.

The calculation of what input VAT can be reclaimed is very often the most challenging area of VAT accounting for charities. Essentially, the rules are:

  • Costs directly relating to earning, standard rate, reduced rate or zero rated income (the business income of the charity) - input VAT charged on these costs is fully reclaimable
  • Costs relating to earning exempt or outside the scope income -the input VAT incurred on these costs is not reclaimable

A professional review of the costs and how to apportion them can improve the recovery of input VAT here, because in reality many costs do not fall wholly into one category or the other.

If you are a trustee, director, member of the board or otherwise involved in a charity in the Bath area and would like advice or a review of your charity's VAT accounting please contact us.