Charities are subject to VAT just like any other business. However they do enjoy a number of exemptions and reliefs. This enables Charities to buy some goods and services with VAT zero rated or at a reduced rate. To benefit from these reliefs a Charity will have to provide the person supplying the goods with evidence of charitable status in the form of a written eligibility declaration or certificate confirming that the conditions for the relief have been met. However these exemptions only apply to certain goods and services and they don’t apply to their trading subsidiaries. The types of expenditure that can be made at zero or reduced rate are as follows:
Advertising is zero rated, but this does not cover the costs of advertising in the Charity’s own media, such as their own magazine or website. However the advertising can be on any subject, including staff recruitment.
Goods or services that will be made available to people with disabilities can be zero rated.
The construction of buildings, intended to be used by a charity solely for non-business purposes, can be zero-rated subject to certain criteria being met. Zero-rating also applies to the construction of buildings intended to be used solely for a ‘relevant residential’ purpose (for example, a care home, hospice or student accommodation). A charity may also benefit from zero-rating for the construction of a ramp or widening of a doorway or passage to enable disabled people to gain access to, or move about in, a charity building. It could also cover providing, extending or adapting a washroom or lavatory for disabled people.
The installation of energy-saving materials, such as central heating and insulation in residential accommodation or in a building used solely for a relevant charitable purpose is liable to VAT at the reduced rate.
The first sale or long lease of a building intended for use by a charity solely for non-business purposes or as a village hall or similar may be zero-rated. Zero-rating can also apply to buildings intended for use for a ‘relevant residential purpose’.
The short lease or rent of a building used solely for non business activities or as a village hall or similar, other than as an office will be exempt from VAT. If a building is used solely for residential accommodation that will also be VAT free.
A charity can claim the reduced rate of 5 per cent where fuel and power is supplied for a qualifying use. Qualifying use means either:
supplied for use in a dwelling or certain other types of residential accommodation, such as a children’s home, hospice or care home for elderly or disabled people
supplied for use in charitable non-business activities, such as free day care for disabled people
If the reduced rate of VAT applies it then follows that the Climate Change Levy will not apply.
Certain supplies of water for domestic and non-industrial use are zero-rated.
Charity-funded medical, veterinary, scientific and rescue equipment and ambulances can be zero-rated when purchased with charitable or donated funds by certain charitable institutions such as those that are approved to provide institutional care, or medical or surgical treatment, where the majority of the recipients are chronically sick or disabled. They may also be zero-rated when purchased by any individual, group or organisation for donation to an eligible body.
A charity that is engaged in the treatment or care of people or animals, or in medical or veterinary research, can purchase medicinal products at the zero rate of VAT.
A charity that is engaged in medical or veterinary research, can buy drugs and chemicals directly used for testing or for mixing with other substances in the course of that research, at the zero rate of VAT.
Charity that provide rescue or assistance at sea, can purchase related goods and services at the zero rate of VAT.
The above is only a summary and there are detailed rules behind all this, so do not act without further research or advice.