Do charities and non-profits have to register for VAT?

Many people assume that charities and non-profit organisations are automatically exempt from VAT, but that is not always true. While some charitable activities are outside the scope of VAT, others are taxable, meaning the organisation may still need to register. Whether or not a charity or non-profit must register for VAT depends on the nature of its income, the level of its taxable turnover, and the types of goods or services it provides.

This article explains how VAT applies to charities and non-profits in the UK, when registration is required, and how organisations can reclaim VAT where eligible.

Understanding VAT and charitable status

VAT (Value Added Tax) is a tax on most goods and services sold in the UK. Charities and non-profit organisations are not automatically exempt from VAT simply because of their status. What matters is the type of activities they carry out.

A charity may receive income from several sources, such as donations, grants, membership fees, and trading activities. Some of these are outside the scope of VAT, while others may be subject to VAT at the standard, reduced, or zero rate.

If a charity’s taxable turnover exceeds the VAT registration threshold—currently £90,000 in any rolling 12-month period—it must register with HMRC for VAT.

When charities and non-profits must register for VAT

A charity or non-profit must register for VAT if its taxable business activities generate turnover above the registration threshold. Taxable activities include the sale of goods or services that are not exempt or outside the scope of VAT.

Examples of taxable activities include:

• Running a charity shop selling donated goods (though sales of donated goods may be zero-rated).

• Selling merchandise or publications.

• Charging admission to events or exhibitions.

• Providing catering or accommodation services.

• Selling services such as training, consultancy, or facility hire.

If the total taxable turnover from these activities exceeds £90,000 in any 12-month period, the organisation must register for VAT.

It is important to note that donations and most grants do not count towards taxable turnover because they are not considered payment for goods or services.

When charities do not need to register for VAT

Many charities and non-profits will not need to register for VAT because much of their income comes from non-business activities. These can include:

• Pure donations or legacies where nothing is given in return.

• Grants used to fund charitable work.

• Fundraising events that qualify for VAT exemption.

• Income from activities carried out for the direct benefit of beneficiaries, not the general public.

If all income falls within these categories, VAT registration is not required. However, once the organisation starts trading or charging for services, registration may become necessary.

Voluntary VAT registration

Even if a charity’s taxable turnover is below the £90,000 threshold, it can register voluntarily. This allows the organisation to reclaim VAT on goods and services it purchases for its taxable activities.

Voluntary registration can be useful if:

• The charity has significant VAT costs on supplies and wants to recover them.

• It mainly deals with VAT-registered organisations that can reclaim VAT on invoices.

• It runs trading subsidiaries or commercial operations.

However, registration also creates administrative responsibilities, including the need to submit regular VAT returns, maintain digital records under Making Tax Digital rules, and account for VAT correctly on sales and purchases.

Mixed activities and partial exemption

Many charities and non-profits carry out both VATable and non-VATable activities. For example, a charity might run a shop (taxable) while also receiving grants for community projects (outside the scope of VAT).

In such cases, the organisation becomes partially exempt. This means it can reclaim VAT only on the portion of costs related to its taxable activities. The rest of the VAT on expenses linked to non-business or exempt activities cannot be recovered.

To manage this, the charity must complete a partial exemption calculation each VAT period to determine how much VAT can be reclaimed. HMRC provides guidance on acceptable calculation methods, and professional advice is often recommended to ensure accuracy.

VAT on charity shops and fundraising

Charity shops and fundraising events are common sources of income for charitable organisations, and each has specific VAT rules.

Charity shops:

• The sale of donated goods by a charity is usually zero-rated, meaning VAT is charged at 0%.

• This allows the charity to recover VAT on costs related to running the shop, such as rent, utilities, and staff expenses.

• If the shop sells new goods bought for resale, those sales are standard-rated and count towards the VAT registration threshold.

Fundraising events:

• Fundraising events held by a charity may qualify for VAT exemption if they meet HMRC’s conditions, including being promoted as a fundraising event and not held more than 15 times per year.

• This exemption covers ticket sales and related income, allowing charities to keep all proceeds for their charitable purposes without accounting for VAT.

VAT on grants and donations

Most grants and donations are outside the scope of VAT because they are freely given, with no supply of goods or services in return.

However, if a grant or sponsorship involves the charity providing something tangible in return, such as advertising or promotional benefits for the sponsor, it may be classed as a taxable supply. In that case, VAT would need to be charged if the charity is registered.

It is essential to review all funding agreements carefully to determine whether the income counts as a grant (outside the scope) or sponsorship (taxable).

VAT reliefs available to charities

Charities are eligible for several VAT reliefs and exemptions that can reduce their costs, even if they are registered. These include:

• Zero-rating for certain goods and services, such as advertising, medical equipment, and construction of new charitable buildings.

• Reduced rate (5%) for some energy supplies used for charitable non-business activities.

• Exemption for some fundraising and education-related services.

To claim these reliefs, the charity must meet HMRC’s eligibility criteria and provide suppliers with the correct declaration forms.

Record keeping and VAT compliance

Charities that register for VAT must comply with all standard VAT obligations, including:

• Submitting VAT returns, usually every quarter.

• Keeping accurate digital records of sales, purchases, and VAT calculations.

• Following the Making Tax Digital (MTD) requirements.

Even if the charity is partially exempt, it must still maintain proper records to support any VAT reclaims or exemptions claimed.

The role of a trading subsidiary

Many larger charities operate trading subsidiaries to handle commercial activities separately from charitable ones. The subsidiary is a limited company that donates its profits back to the parent charity.

This setup can simplify VAT management by keeping taxable trading activity distinct from non-business charitable operations. The subsidiary may need to register for VAT if its turnover exceeds the threshold, while the parent charity remains outside VAT for its purely charitable work.

Professional advice for VAT and charities

VAT for charities is a complex area, and small errors can lead to missed reliefs or unexpected tax bills. An accountant with experience in the charity sector can help by:

• Assessing whether the charity should register for VAT.

• Managing partial exemption and VAT recovery calculations.

• Claiming eligible VAT reliefs and zero-ratings.

• Preparing accurate VAT returns under MTD.

The bottom line

Charities and non-profits are not automatically exempt from VAT. If their taxable business income exceeds £90,000 in a rolling 12-month period, they must register and follow the same rules as any other VAT-registered business.

While donations and grants are usually outside the scope of VAT, trading income, commercial activities, and sponsorships can trigger registration. Understanding which activities are taxable and which are exempt is key to staying compliant and maximising funds for charitable work.

With careful planning, proper record keeping, and professional support, charities can meet their VAT obligations efficiently while taking advantage of the reliefs and exemptions available to them.