Can charities reclaim VAT in the UK?

Full answer

VAT and charities is a genuinely complex area with a patchwork of reliefs, exemptions, and restrictions. The starting point is understanding why charities generally cannot reclaim VAT. Why most charities cannot reclaim VAT: VAT input tax recovery works on the principle that a VAT-registered business can reclaim VAT it pays on purchases used to make taxable (VATable) supplies. Most charities' primary activities are either non-business activities (e.g. making grants, running purely charitable welfare services) or VAT-exempt activities (e.g. education, welfare, health). Input VAT on costs related to non-business or exempt activities is not recoverable. This means a charity paying GBP 12,000 (including GBP 2,000 VAT) for office IT equipment used entirely for exempt charitable purposes cannot recover the GBP 2,000 -- it is a real cost. Partial exemption: if a charity carries on both taxable and exempt/non-business activities (e.g. it runs a charity shop selling donated goods, operates a taxable trading subsidiary, or makes other VATable supplies), it may be VAT-registered and can recover input VAT proportionately using a partial exemption calculation. The standard method is based on the ratio of taxable turnover to total turnover. Zero-rate and exemption reliefs for charities (key ones for 2026/27): 1. Advertising: services provided to charities for the purpose of raising awareness or funds are zero-rated. This includes newspaper advertising, leaflet printing, online display advertising, and direct mail services. 2. Donated goods in charity shops: zero-rated by charities when sold (not standard-rated retail). 3. Medical, scientific, and welfare equipment: a charity buying certain qualifying equipment (e.g. medical devices, ambulances, disability equipment) may receive it zero-rated from the supplier. 4. Construction of new charitable buildings: the first grant of a major interest in a newly constructed building intended solely for use by a charity for a relevant charitable purpose (non-business) is zero-rated. Alterations and annexes to existing buildings can also qualify. 5. Fuel and power: supplies of fuel and power to charities for non-business use are zero-rated. 6. Lifeboats and rescue equipment: zero-rated when supplied to qualifying charities. 7. Certain fundraising events: up to 15 fundraising events per charity per location per year can be treated as exempt from VAT. VAT registration: a charity must register for VAT if its VATable (taxable) turnover exceeds the threshold (GBP 90,000 for 2026/27). Voluntary registration is also possible below the threshold if the charity makes taxable supplies. Being registered allows recovery of related input VAT but means charging VAT on taxable supplies. Making Tax Digital for VAT: registered charities must comply with MTD for VAT like any other entity -- keep digital records and file VAT returns digitally.

Try the calculator