Tax Relief Unveiled: What You Need to Know and How to Claim It

 VAT & Charitable Giving

Charities get income from a variety of sources, some of which may be subject to VAT if the charity is VAT registered or should be. Here's everything you need to know about VAT on charitable revenue.

Taxable commercial activity

Business activities in the United Kingdom are subject to VAT at the usual rate (currently 20%) unless specified reduced-rated, zero-rated, or exempt from VAT under the VAT Act of 1994.

Even though a non-profit organisation is assessed to have purely non-business activities for non-VAT reasons, it may nonetheless be considered to be carrying on a business activity for VAT purposes.

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Buildings for hire

Hiring out a building for a fee is often a business activity that is VAT exempt. If, on the other hand, a charity (as landlord) has chosen to tax the building, the fees received are standard rated unless the individual hiring the building (or part of a structure) from the charity is either:

planning to use it as a habitation, such as a residential flat above a charity shop, or another charity intending to use it for non-commercial purposes, such as a village hall or similar.

planning to use it for a relevant residential purpose, such as a children's or handicapped people's home, or a hospice

If any of the aforementioned conditions are met, the fees received are no longer VAT exempt.

Subscriptions to membership

A business activity is the supply of membership benefits to members of a club or association. The VAT liability of a membership subscription is determined by the benefits provided.

Membership subscriptions typically provide the member with a set of perks. If there is a single primary benefit to which all other benefits are ancillary, the entire subscription is evaluated as a single supply, and the VAT responsibility follows the primary benefit.

Charities and non-profit organisations, on the other hand, can treat their single shipments of membership perks as numerous supplies as a concession. This means that the VAT treatment of each benefit can be assessed separately, and the subscription charge can be allocated accordingly. This means that the distribution of publications or handbooks to members is usually tax-free.

If little or nothing is supplied in exchange for a subscription, it may be considered a donation and hence exempt from VAT.

Some supplies made in exchange for a subscription to certain non-profit public interest organisations may be excluded from VAT. Non-profit organisations that qualify must have public-interest goals, such as political, religious, patriotic, philosophical, philanthropic, or civic ones.

The exemption, however, does not apply to the following: any supplies that are not related to the organization's aims as stated in its articles of association; the right of admission to any premises, event, or performance for which non-members must pay; or any supplies that are not provided automatically as part of the membership benefits and for which an additional sum is charged.

Charity income sources are numerous and diverse, and if there is any doubt about whether a supply is a business activity and what the relevant VAT treatment should be, expert counsel should be obtained.