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HMRC internal manual

VAT Charities

Business and non-business: Charitable activities: Identification of supplies made rather than sources of income

Because VAT is only recoverable to the extent that it relates to taxable business activities it is important to determine which activities are by way of business for VAT purposes and which are not.

With certain exceptions set out in the following paragraphs, if a charity provides goods or services for a fee, charge or other consideration it is normally a business activity. On the other hand, goods and services provided free (which may be funded from donations or grants - see VCHAR3400) are usually non-business activities. You will need to bear in mind that all activities conducted by the charity will have to be identified rather than just the sources of income that the charity receives. This can have a marked effect on the proportion of input tax that can be reclaimed.

  1. Free supply of services

The purpose of any charity and the way that they tend to be organised means that some services will inevitably be supplied free of charge. The free supply of services is a non-business activity and is outside the scope of VAT.

  1. Free supply of goods

The free supply of goods by a charity to its beneficiaries is usually a non-business activity. An exception is the export of goods outside the EU. This is deemed to be a business activity. Charities can therefore register for VAT in respect of the export of their relief goods to places outside the EU. This allows them to reclaim any associated input tax incurred on the purchase of the goods and associated costs, such as storage and handling. This is covered more fully in VCHAR8000.