Charity VAT – Maximising reliefs

“We are a charity, we don’t pay VAT!” 

It is a common misconception for charities that VAT is not a problem for them. Not only is this not true; in fact, charity VAT is one of the most complex areas of the tax.

Over the next few blogs, we will look at some of the key VAT issues affecting charities.  However, in this blog we will concentrate on maximising the various reliefs that are available to charities because the simple fact is – If you are not charged VAT in the first place, you don’t have to worry if it is recoverable!

VAT reliefs applicable to charities

Although for most expenditure, a charity is treated the same as any other business, there are a number of areas of expenditure where the zero or reduced rate of VAT applies.

Certain supplies may be zero-rated simply because you are a charity. These include:

• Advertising and items connected with collecting donations – this covers all advertising, including staff recruitment adverts, and items such as branded envelopes and appeal letters.
• Aids for the disabled provided for personal or domestic use.
• Drugs and chemicals used for testing where a charity is involved in medical or veterinary.
• Equipment for producing ‘talking’ books and newspapers.

In addition, certain supplies will be zero rated based upon the activities which your charity undertakes, including:

• The construction of a new residential care home.
• The construction of a new community centre.
• Improving access to a building for disabled persons.
• Emergency alarm call systems and wheelchairs for the use of disabled persons.
• The purchase of a mini-bus to transport wheelchair users or blind, deaf or handicapped people.

Finally, certain costs may incur VAT at the 5% reduced rate. These include:

• Electricity/gas supplies used for a qualifying purpose.
• The supply of mobility aids installed in the home of a person over 60.

To obtain many of the above reliefs, it is often necessary to provide the supplier with a certificate which includes an eligibility declaration at the outset. We would recommend that all charities should maintain a list of the available reliefs which can be referred to during the procurement process.

However, if you have incorrectly incurred VAT because you were unaware of the available reliefs, it is still possible to make a claim to the supplier going back four years. A review of reliefs forms part of AAB’s VAT heath check for charities.

If you would like further information about our VAT health check or would like to understand more about the reliefs available to Charities, please contact Alistair Duncan, Director & Head of Indirect Tax, or contact us here.