Do Charities Pay VAT? Reliefs and Exemptions Explained

PHS Team

14 Oct, 2025

Charities are not automatically exempt and may have to pay VAT depending on their sales and activities. Some goods and services qualify for VAT reliefs or exemptions, helping charities reduce costs and comply with tax rules.

So, if you have a question, do charities pay VAT? Understanding which charity activities are exempt or taxable is key to managing VAT effectively and ensuring your charity follows the right procedures.

What Is VAT for Charities?

VAT (Value Added Tax) applies to most goods and services sold in the UK. However, charities and VAT work differently from regular businesses because of their non-profit status and public benefit purpose.

Here’s what you need to know about VAT for charities:

• Charities need to register for VAT if their taxable income goes above the threshold (£90,000).
• If registered, they must charge VAT on taxable sales and can reclaim VAT on some purchases.
• Even if not registered, certain charity activities may be VAT-exempt or zero-rated.

Though the system sounds complex, the key is knowing which of your charity’s sales are taxable, exempt, or zero-rated.

Are Charities VAT Exempt?

While asking Do charities pay VAT?, It’s important to note that some supplies are fully exempt while others qualify for partial relief. 

Charity VAT exemption usually applies to:

• Fundraising events run purely for charitable purposes.
• Welfare services such as care for children, the elderly, or disabled people.
• Cultural activities such as museum entries, played by non-profit organisations.

However, not everything a does is VAT exempt. For example, selling products online, renting out property, or offering paid training might still have VAT implications.

That’s why it’s important to check every activity to see if an exemption or relief applies.

VAT Reliefs Charities Can Claim

Charities can benefit from special VAT rates to help reduce costs on essential goods and services.

Reduced Rate VAT (5%)

Charities pay a lower VAT rate of 5% on fuel and power when used for:

• Residential accommodation, like children’s homes or elderly care homes.
• Charitable non-business activities, such as free daycare for disabled people.
• Limited amounts, for example, up to 1,000 kilowatt hours of electricity a month or 2,300 litres of gas oil.

If less than 60% of fuel and power is used for these, only that part gets the 5% rate, and the rest is charged normal VAT.

Zero-Rate VAT (0%)

Some goods and services can be bought without paying VAT if they meet the rules. These include:

• Advertising materials for the public (like posters or flyers).
• Medical and disability aids such as wheelchairs and adapted vehicles.
• Construction work for new charitable buildings or accessibility ramps.
• Equipment to produce talking books or newspapers.
• Rescue equipment and ambulances.
• Drugs and chemicals for medical or veterinary research.

It’s important to check the details for each category before claiming these VAT benefits.

How to Manage VAT Compliance for Charities

Handling charities and VAT can be tricky, especially when you manage other accounting duties like payroll, bookkeeping, and self-assessment. To stay compliant with HMRC rules, charities should:

• Keep detailed financial records of all income and expenses.
• Identify which activities are taxable or exempt.
• Apply for VAT registration when the threshold is reached.
• Seek professional help for regular VAT return submissions.

Professional accountants can offer expert advice on VAT registration, reliefs, and reclaim opportunities, helping you save both time and money.

Can charities reclaim VAT?

Can charities claim back VAT only if they are registered for VAT? VAT-registered charities may claim back VAT on goods and services used for taxable business activities. 

However, if a charity is not VAT registered, it cannot reclaim VAT on purchases from VAT-registered suppliers. Reclaiming VAT depends on meeting specific criteria set by HMRC and keeping proper records.

Conclusion

In conclusion, some charities may not pay any VAT, while others might pay VAT on certain goods and recover it on purchases. Understanding charity VAT exemptions and available reliefs ensures compliance and efficient financial management.

If you’re still unsure and asking yourself, Do charities pay VAT?, our expert team can help you understand your VAT position and claim the right exemptions.

You’re managing a charity or small organisation and need help with VAT, payroll, or bookkeeping. Our expert accountants are here to support you. Call us at 0208 8611685 or email info@phs-uk.co.uk to make VAT compliance simple and stress-free for your charity.

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