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HMRC internal manual

VAT Charities

HM Revenue & Customs
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Business and non-business: Charitable activities: Treatment of welfare services supplied below cost: Origins of the relief

When VAT was introduced in 1973 charities expressed some concern about its potential impact on welfare services that, while not supplied free, were usually supplied at significantly below cost. It was agreed therefore that supplies by charities of welfare services, at significantly below cost, to distressed persons for the relief of their distress would be regarded as non-business.

Since then Court decisions have made it clear that “business” would normally include supplies made for a consideration, even if below cost. Despite this we have continued to apply this special non-business concession for charities welfare activities. The introduction of wider welfare exemptions have made this concession less important. However, it still remains a useful concession as it can increase charities entitlement to reliefs linked to non-business activity.