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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: How does the relief work?

To qualify as non-business the charity must be providing a welfare service at “below cost”. In addition the recipient of the supply must be the “distressed” individual who is in need of welfare. By “distressed” we mean someone who is suffering pain, grief, anguish, severe poverty etc.

Charities often provide welfare services such as day centres, meals on wheels etc., under contract to local authorities. Charities will often tender for such work in competition with commercial providers. Where there is a contractual relationship between a charity and a local authority for the provision of services the supply is always to the local authority. This would always be a business activity. This is the case even if the supply to the local authority is made below cost.

Once you are satisfied that the supply qualifies as welfare supplied to distressed persons for the purposes of relieving their distress, you will need to establish:

  • the cost to the charity of providing the service (see VCHAR3560)
  • the payments received for the service provided by the charity (see VCHAR3580)
  • that the service is available equally to all distressed people (see VCHAR3600).