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HMRC internal manual

VAT Charities

HM Revenue & Customs
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Medical and scientific equipment (“relevant goods”): Effect on charities of the legislative changes made in 1996


Since 1981, VAT law has allowed “charitable institutions providing care or medical or surgical treatment for handicapped persons” to be treated as “eligible bodies” and to purchase a specified range of “relevant goods” (including motor vehicles adapted for the use of disabled people) at the zero rate. The relief was intended to apply only to certain types of charities but its scope was extended beyond its original intention by decisions of the VAT Tribunal and the High Court. In these decisions the courts held that:

  • providing suitable accommodation
  • providing for daily needs (not further defined by the Court)
  • providing a secure environment,

all constituted the provision of care. If Customs had accepted this then the relief would have been extended to virtually any charity that provided any service in a caring manner and had amongst its clientele a minimal number of disabled people. Legislation was therefore introduced in the 1996 Budget to ensure that zero-rating did not extend beyond its original intention.

The following Notes 4A, 4B, 5A and 5B were added with effect from 26 November 1996. These Notes qualify the definition in Note 4(f).

(4A) Subject to Note (5B), a charitable institution shall not be regarded as providing care or medical or surgical treatment for handicapped persons unless -

(a) it provides care or medical or surgical treatment in a relevant establishment; and

(b) the majority of the persons who receive care or medical or surgical treatment in that establishment are handicapped persons.

(4B) “Relevant establishment” means -

(a) a day-centre, other than a day-centre which exists primarily as a place for activities that are social or recreational or both; or

(b) an institution which is -

(i) approved, licensed or registered in accordance with the provisions of any enactment or Northern Ireland legislation; or

(ii) exempted by or under the provisions of any enactment or Northern Ireland legislation from any requirement to be approved, licensed or registered;

and in paragraph (b) above the references to the provisions of any enactment or Northern Ireland legislation are references only to provisions which, so far as relating to England, Wales, Scotland or Northern Ireland, have the same effect in every locality within that part of the United Kingdom.

(5A) Subject to Note (5B), items 4 to 7 do not apply where the eligible body falls within Note (4)(f) unless the relevant goods are or are to be used in a relevant establishment in which that body provides care or medical or surgical treatment to persons the majority of whom are handicapped.

(5B) Nothing in Note (4A) or (5A) shall prevent a supply from falling within items 4 to 7 where-

(a) the eligible body provides medical care to handicapped persons in their own homes;

(b) the relevant goods fall within Note (3)(a) or are parts or accessories for use in or with goods described in Note (3)(a); and

those goods are or are to be used in or in connection with the provision of that care.  

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Subsequent problems and introduction of ESC

It soon became apparent that the revised legislation excluded from the relief some charities which specifically targeted their caring upon disabled people but which did not meet the requirements of the amended legislation.

Consequently, we introduced an extra-statutory concession to enable certain charities to continue to purchase relevant goods (in practice adapted motor vehicles) at the zero rate

VAT: Supplies of “relevant goods” to charities

Where “relevant goods” of a kind described in Note (3) to Group 15 of the Value Added Tax Act 1994 are supplied to a charity -

(a)whose sole purpose and function is to provide a range of care services to meet the personal needs of handicapped people (of which transport might form a part); or  

(b)which provides transport services predominantly to handicapped people,  

then, by concession, the supply of those goods will be zero-rated, as will the repair and maintenance of those goods and the supply of any further goods in connection with that repair and maintenance.

“Handicapped” means chronically sick or disabled.

In order to be eligible for this concession, a charity must demonstrate that it meets the requirements of sub-paragraphs (a) or (b) above by way of -

  • its charitable aims and objectives;
  • its publicity and advertising material;
  • any documents which it has issued for the purpose of obtaining funding from a third party such as a local authority;
  • its day to day operations; and
  • any other evidence that may be relevant.  

In practical terms the relevant goods that are most likely to be purchased by these charities are motor vehicles adapted for use by disabled passengers (with space for at least one wheelchair user), or a motor vehicle to transport mainly blind, deaf, mentally impaired or terminally sick persons. Boats that are designed or permanently adapted for use by disabled people are also eligible for relief.

We do not want to force charities to keep detailed records of the passengers they care for or transport simply to prove their eligibility. We have decided to utilise records and documentation which charities already keep for non-VAT reasons.

For example the charity’s aims and objectives (which may be an extract from the constitution). Often a charity’s eligibility will be clear from this document but in other cases additional supporting evidence will be provided by:

  • the charity’s publicity and advertising material
  • any documents which the charity has issued for the purpose of obtaining funding from a third party, such as a local authority
  • evidence of its day to day operations
  • any other evidence that may be relevant, for example an analysis of passengers carried out over a representative period.

The evidence should all show a consistent theme i.e. that the charity serves or the community transport charity predominantly serves one client group - disabled people. This does not mean that they will be precluded from the relief if they provide help to or transport for other people. But they must be able to demonstrate that they focus their activities upon disabled people and cater predominantly for their needs.

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Effect on charitable institutions

This means that charitable institutions providing care or medical or surgical treatment for handicapped persons may now qualify for zero-rated purchase of relevant goods by one of two routes:

  • under the ESC detailed above, or
  • under the VAT law, as amended in November 1996 (see VCHAR14450, VCHAR14500 and VCHAR14550).