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HMRC internal manual

VAT Charities

Business and non-business: Charitable activities: What happens if a charge is made but the customer doesn’t pay it?

In some cases a charity may charge for its services (eg residential care, childcare, animal care) and in other respects operate on a business basis. However, where a particular customer is unable to pay, the charity may agree to waive the charge. This does not make the activity wholly non-business. The free supply to a particular customer who is unable to pay may be a non-business supply, but the nature of the other supplies made by the charity is unchanged. Cases depend on their own facts and it is difficult to set out hard and fast rules.