Do charities pay VAT? It might sound a bit uncharitable on the part of HMRC (which is not at all like them…) , but believe it or not they actually do - under certain circumstances.

While charities do get access to a range of VAT reliefs and exemptions, that doesn’t mean they’re automatically off the hook. 

Depending on what your charity does (and how much taxable income it brings in), you might still need to register for VAT, charge it on some activities, or deal with it when buying goods and services.

In this quick guide, we’ll explain when VAT applies, where charities can claim relief, and what all this means for your day-to-day finances.

Do charities have to pay VAT?

Just like businesses, charities can be charged VAT on the goods and services they buy. And if they’re selling things or charging for services (like running a charity shop or offering paid training), they might need to charge VAT too.

However, some of the things charities do are exempt from VAT, and others might be zero-rated or come with special reliefs.

That’s why it’s so important to understand what counts as a “taxable activity” and keep an eye on your income.

If your charity’s VAT-taxable turnover goes over the £90,000 registration threshold (correct as of 2025), you’ll need to register for VAT - even if you’re a not-for-profit. 

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Voluntary VAT registration for Charities - is it worth it?

Below £90,000 turnover? You can still register voluntarily if it makes financial sense, and in some cases it is worthwhile:

If your charity makes mainly zero-rated supplies (like certain printed materials) but pays VAT on purchases, registering could let you reclaim some of that VAT and improve your cash flow.

When are charities exempt from VAT?

Some of the work charities do is VAT exempt, meaning you don’t charge VAT on the income but you also can’t reclaim VAT on related costs.

Common VAT-exempt activities include:

• Fundraising events (like charity dinners or auctions)
• Educational services (such as training or workshops)
• Welfare services provided directly to people in need

These exemptions are designed to keep admin simple and costs lower for charities doing essential work. But they also come with limits – for example, the fundraising event must meet HMRC’s definition to qualify as exempt.

It’s also worth knowing the difference between VAT exempt and zero-rated – they’re not the same thing. If something is zero-rated (like printed leaflets or certain building works), you still include it in your VAT returns, and you can usually reclaim VAT on related costs. Exempt items, on the other hand, don’t count towards reclaim calculations.

VAT reliefs for charities in the UK 

In the UK, charities benefit from specific VAT reliefs, significantly reducing their tax burden. While not fully exempt, they can access zero-rated or reduced-rate VAT on certain goods and services.

Key reliefs include:

• Zero-rated VAT: Applicable to purchases like advertising, aids for disabled people, and construction services for new charitable buildings or annexes.
• Reduced-rate VAT (5%): Often applies to fuel and power used for charitable non-business activities or in residential accommodation.
• Input VAT recovery: VAT-registered charities can reclaim VAT on expenses directly related to their taxable (business) activities.

Can charities reclaim VAT?

If your charity is VAT registered, you can reclaim VAT on purchases that relate directly to your VAT-taxable activities. So, if you're selling goods in a charity shop or charging for services, and those sales include VAT, you can usually reclaim the VAT you’ve paid on relevant expenses.

But it gets more complicated with exempt activities. If you're earning income from VAT-exempt sources – like fundraising events or certain welfare services – you normally can’t reclaim VAT on the costs associated with those.

If your charity does a mix of taxable and exempt work, you’ll likely fall under the partial exemption rules, which means you'll need to work out how much VAT you can claim back, and how much you can’t.

And if your charity isn’t VAT registered? In some cases, you can still reclaim VAT on certain items using the VAT126 refund scheme – this applies mainly to local authorities and certain other public bodies, but some charities may qualify.

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Common examples: VAT and charities

VAT rules can feel a bit abstract until you see how they play out in the real world. Here are some common charity scenarios and how VAT might apply:

Running a charity shop

If your charity runs a shop selling donated goods, the income is outside the scope of VAT – no VAT to charge, and it doesn’t count towards the registration threshold. But if you sell new goods, that income is VAT-taxable and might push you over the registration threshold.

Hosting a fundraising dinner

If it meets HMRC’s criteria for a qualifying fundraising event, it can be VAT exempt, even if guests pay to attend. But if it’s a regular or commercial-style event, you may need to charge VAT on ticket sales.

Delivering paid training courses

Some educational or training services provided by charities can be VAT exempt, especially if the training has a charitable purpose. But not all training qualifies, so it's important to check the details.

Paying for building works

If you're constructing a new building for charitable use (like a community centre or hospice), you may be able to get the work zero-rated for VAT,  potentially saving thousands. But the relief only applies if strict conditions are met.

Buying advertising services

Advertising aimed at the general public – like newspaper ads or billboard campaigns – is usually zero-rated for charities. But targeted digital ads (e.g. social media ads aimed at specific individuals) may not qualify for the same relief.

Buying medical or scientific equipment

If your charity uses equipment for medical care or research, some purchases may be zero-rated, as long as the supplier has the right documentation from you.

Adding value to charity

So, we know that charities do pay VAT, or at least Sometimes. But it all depends on what your charity does, how much taxable income it brings in, and whether you’re making use of the right reliefs and exemptions.

The rules can be difficult to interpret and adhere to, and getting things wrong can be costly. That’s why it’s always a smart move to work with an accountant who understands the ins and outs of VAT for charities.

At Crunch, we’re here to take the stress out of your finances,  so you can focus on making a difference. If you need help with VAT, registration, or anything else accounting-related, we’re ready when you are.

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