VAT may not always be front of mind for trustees, but it has a quiet impact on many of your charity’s decisions – from how you raise funds, to how you spend them. Even small errors or missed opportunities can affect your charity’s finances, especially when running events, offering services or buying specialist equipment.

In this guide, we’re focusing on the most relevant VAT exemptions and reliefs available to UK charities, with practical examples tailored for trustees.

You’ll learn what counts as exempt, what’s zero-rated, when you need to provide documentation and how to stay on the right side of HMRC rules.

With a basic understanding and the right support, your charity can save money and stay compliant.

What Is VAT and When Does It Apply to Charities?

VAT (Value Added Tax) is a charge added to most goods and services sold in the UK. As a charity, you may not always need to charge VAT but you often pay it, and in some cases, you may be expected to account for it.

You’ll encounter VAT when paying for everyday costs such as office equipment, printing, software licences, or professional services. Some of these items qualify for reduced or zero rates if they meet HMRC conditions but suppliers will usually charge standard VAT unless you provide the correct documentation in advance.

VAT may also apply to the income your charity receives. This includes sales from charity shops, entry fees for exhibitions or events or charges for training or consultancy. If these are part of a trading activity, the income may be taxable.

Here’s how VAT is treated on different types of supplies:

• VAT-exempt: No VAT is added but you can’t reclaim VAT on related costs
• Zero-rated: No VAT is added and you can reclaim VAT on related costs
• Standard-rated: VAT is charged at 20% and may be reclaimed if you’re VAT registered.

Knowing where your charity’s activities fall, helps you apply the right treatment and keep your records in good shape.

What Goods and Services Are VAT-Exempt for Charities?

Certain charity activities are not subject to VAT. These exemptions reduce your reporting burden and help you avoid charging VAT to beneficiaries. However, they come with strict definitions that trustees need to understand clearly.

Some of the most commonly exempt activities for UK charities include:

• Fundraising events such as charity dinners, concerts and fairs, as long as they are advertised as raising funds for the charity. HMRC allows up to 15 such events per year of the same type, per location.
• Donations and grants where there is no significant benefit offered in return. For example, a regular donation made by a supporter without receiving a service is not subject to VAT.
• Welfare services such as supported housing, counselling or care for vulnerable people, when provided to meet charitable objectives.
• Education and vocational training delivered to improve personal skills, employment prospects or community development, if the charity meets HMRC’s criteria as an eligible body.
• Cultural services including museum entry or guided tours, if your charity operates as a non-profit cultural organisation and makes the services available to the public.

What Is Zero-Rated VAT and When Can Charities Use It?

Zero-rated VAT means that no VAT is charged on a good or service but the supplier can still reclaim the VAT they paid on related costs. For charities, this can make a real difference when working with external providers or producing materials for public use.

Several categories of goods and services are zero-rated when supplied to or by eligible charities:

• Printed materials used for fundraising or public awareness, such as leaflets, newsletters or posters. To qualify, they must be printed (not digital) and primarily designed for distribution.
• Advertising services including space in newspapers, magazines, billboards, and online banners, when aimed at the general public.
• Construction of new charitable buildings, such as care-centres or community halls if the building is intended solely for non-business charitable use.
• Drugs and medicines when supplied to a charity for use in medical treatment or research.

VAT Reliefs Available on Purchases by Charities

Charities can claim VAT relief on a wide range of purchases, as long as the items are used solely for charitable purposes. These reliefs reduce the cost of goods and services and free up more of your charity’s budget for its core mission.

Some key goods and services eligible for VAT relief include:

• Medical and scientific equipment such as defibrillators, microscopes or laboratory supplies, used for health care, diagnosis or research.
• Aids for disabled people like specialist beds, hoists, and communication tools, when purchased for direct use by or loan to disabled beneficiaries.
• Fuel and power such as gas and electricity, if at least 60% is used for non-business charitable activities. In these cases, the reduced VAT rate of 5% may apply.

To benefit from reliefs, charities must give suppliers a valid VAT relief certificate at the time of purchase. This document confirms that the item is being bought for qualifying purposes.

Can Charities Recover VAT on Purchases?

Charities can sometimes reclaim VAT they pay on goods and services, but only under specific conditions. The key factor is whether the purchase supports activities that are classed as “business” for VAT purposes.

If your charity charges for services or sells goods, such as running a shop, charging entry to an event or delivering paid training, then some of your costs may relate to taxable business activity. In these cases, VAT on related purchases may be recoverable.

When your charity mixes business and non-business activities, you’ll need to apply the partial exemption rules. This means apportioning your VAT claims to reflect how each cost supports either taxable, exempt or non-business work.

Example: A charity runs a café and also provides free community meals. VAT on stock used in the café may be partially recoverable, while costs linked to the free meals are not.

Common Mistakes Trustees Should Avoid

Trustees often focus on programme delivery and fundraising but VAT compliance also needs attention. These are some of the most frequent (and costly) issues faced by UK charities:

• Claiming VAT relief without providing the required certificate. For example, when buying medical equipment or fuel, your supplier must receive a signed VAT relief form. Without it, they are obliged to charge the full 20% rate.
• Treating all income as donation based. Income from trading activities, like a gift shop, online courses or ticketed events, may fall within the scope of VAT. Failing to check leads to underreporting and penalties.
• Misclassifying activities as zero-rated. If your charity prints personalised letters or digital PDFs instead of paper leaflets, they do not qualify for zero-rating.
• Overclaiming VAT on mixed-use purchases. If a cost supports both business and non-business activity, (e.g., a shared building or staff resource) only part of the VAT may be recoverable under partial exemption rules.

What Records Must Be Kept to Stay Compliant?

Keeping accurate records is essential for VAT compliance. HMRC expects charities to maintain clear documentation for any VAT relief claimed or VAT charged.

At a minimum, your charity should keep:

• Invoices showing VAT rates and supplier details
• VAT relief certificates, signed and stored for each qualifying purchase
• Evidence of how goods or services are used, especially for partial exemption calculations
• Records of fundraising events, showing how the event meets HMRC’s fundraising criteria
• Contracts and correspondence related to construction, advertising or educational services

In a VAT inspection, HMRC will look for consistency, eligibility, and documentation. Strong records reduce the risk of errors and penalties and make year-end reviews much smoother.

When Should You Register Your Charity for VAT?

You need to register your charity for VAT when your VAT-taxable turnover exceeds £90,000 in any 12-month rolling period (as of 2025). This includes income from business activities such as selling goods, charging fees for services or running ticketed events, even when those funds support your charitable mission.

It’s a good idea to monitor your income regularly. If you sell merchandise, rent out space or deliver paid training, those activities may count toward the threshold.

Voluntary VAT registration is also possible. It can benefit your charity if you make regular taxable purchases, (for example, paying for advertising, event hire or consultancy). Registration allows you to recover VAT on those costs, as long as they relate to business activities.

If your charity has a trading subsidiary, check whether that entity needs to register separately. HMRC treats subsidiaries as distinct from the main charity for VAT purposes.

Review your VAT position at least once a year, especially if you’re expanding services or starting a new income stream. Speaking with a charity accountant helps ensure you take the right steps at the right time.

Make VAT Work for Your Charity

VAT affects more areas of your charity than it may seem at first. When you understand how exemptions and reliefs apply, you can manage your resources with greater confidence. Each correct classification, relief certificate, and record helps you maximise income and reduce unnecessary costs.

Clear knowledge of what is exempt, what qualifies for zero-rating, and when registration is required supports strong decision-making and sound financial planning. It also allows you to work more efficiently with your accountant and team.

To explore your VAT position or check how reliefs apply to your activities, expert guidance is available.

Book a free call with Charity Accounting Partners to receive practical support from accountants who specialise in the charity sector.