1. Overview

1.1 What this notice is about

This notice explains:

• what a charity is
• how VAT affects charities
• how a charity’s income is treated for VAT purposes
• what VAT reliefs a charity can get on its purchases whether or not it’s registered for VAT

You can find an explanation of the terms used in this notice at section 9.

Because of the diversity of activities undertaken by charities it is not possible to cover every situation within this notice, contact Charities and Community Amateur Sports Clubs.

If you find that the area you’re interested in is not covered by this notice contact VAT general enquiries.

1.2 Who should read this notice

You should read this notice if you’re either:

• involved in a charity
• involved in a business who makes supplies to or has other dealings with charities
• a fundraiser for charities
• a user of charity services

1.3 The law covered in this notice

Because of the diversity of activities undertaken by charities it is not possible to list every relevant section of legislation. The areas of legislation offering specific reliefs to charities are as follows.

The Value Added Tax Act 1994 Section 29A reduce rates goods and services listed in Schedule 7A to the Act.

The supply to charities of fuel and power in buildings used by charities for non-business purposes is reduced-rated under Group 1 of Schedule 7A.

The Value Added Tax Act 1994 Section 30 zero rates goods and services listed in Schedule 8 to the Act:

• the supply to charities of talking books for the blind and disabled and wireless sets for the blind is zero-rated under Group 4 of Schedule 8
• the first grant of a major interest in, and the construction of buildings to be used solely for a relevant charitable purpose is zero-rated under Group 5 of Schedule 8
• the supply to charities of sea rescue equipment and of repair and maintenance to that equipment is zero-rated under Group 8 of Schedule 8
• the supply to charities of aids for use by disabled people is zero-rated under Group 12 of Schedule 8
• the supply of certain goods and services by and to charities or with funds provided by charities is zero-rated under Group 15 of Schedule 8

The Value Added Tax Act 1994 Section 31 exempts from VAT goods and services listed in Schedule 9 to the Act:

• the supply by a charity of welfare services and the supply of goods and services in connection with spiritual welfare services is exempted from VAT under Group 7 of Schedule 9
• fundraising events held by charities and other qualifying bodies are exempted from VAT under Group 12 of Schedule 9

2. Charities

A body is considered to be a charity if it has charitable status. A non-profit making body does not necessarily have charitable status.

2.1 Proof of charitable status

Organisations that wish to claim charity VAT reliefs in the UK must now meet the conditions of the definition of charity for tax purposes.

Charities must be:

• based in the UK
• established for charitable purposes only
• registered with the Charity Commission or corresponding regulator, where required
• run by ‘fit and proper persons’
• recognised by HMRC

If your charity is not currently recognised by HMRC, you can apply for recognition online.

Charities claiming VAT relief may need to demonstrate recognition of their charitable status by HMRC. This may be achieved by quoting their HMRC recognition reference.

2.2 Trading subsidiaries

Charity law allows charities to carry out trading activities in the course of carrying out their primary purpose. For example, the provision of residential accommodation by a care charity in return for a payment, or the holding of an art exhibition by a charitable art gallery or museum in return for admission charges. This is called ‘primary purpose trading’.

Charities may also wish to use trading activities as a way of raising money. For example, a charity whose primary purpose is providing education may sell Christmas cards and gifts through a catalogue. This is called ‘non-primary purpose trading’.

Charity law does not permit charities to carry out non-primary purpose trading in their own right, on a substantial basis. This is because of the general expectation that contributions made to a charity will be used for its primary purpose or invested prudently, rather than being risked in trading activities simply to raise money.

In order to carry out non-primary purpose trading on a significant scale, charities have to establish ‘subsidiary trading companies’. These are trading companies controlled by one or more charities but are not themselves charities.

Most of the VAT reliefs available to charities are not available to subsidiary trading companies.

If a charity and its trading subsidiaries are VAT registered it may be possible, under certain conditions, for them to register as a VAT group. See VAT Notice 700/2: group and divisional registration for more information.

2.3 If you’re still uncertain

If you’re still uncertain of your position, you can find contact details:

• for the:
  • Charity Commission for England and Wales on their website
  • Office of the Scottish Charities Regulator (OSCR) on their website
  • Charity Commission for Northern Ireland (CCNI) on their website
• for HMRC’s Charities and Community Amateur Sports Clubs

3. Implications of VAT for charities

3.1 VAT

VAT is a tax on consumer expenditure. It’s collected on business transactions and imports.

3.2 Who needs to register for VAT

Any business (and this may include a charity or its trading subsidiary) that makes taxable sales in excess of a set figure, known as the VAT registration threshold must register for VAT.

Taxable sales are business transactions that are liable to VAT at the standard, reduced or zero rate. Guidance on whether something is a business transaction can be found in section 4. Many charities make taxable sales and if your level of income from those sales exceeds the VAT registration threshold you will need to register for VAT. This is not optional and there are penalties if you fail to register on time.

Charities whose business activities take place wholly outside the UK, can register for VAT if those activities would be taxable were they to take place in the UK.

If a charity’s income from taxable sales is below the VAT registration threshold you can register for VAT voluntarily. But if a charity’s income from taxable sales is below the threshold, and you do not want to register for VAT, the charity does not need to charge VAT on any of its income. The charity should check regularly that it is not exceeding the VAT registration threshold.

But a charity that makes no taxable sales, either because the charity has no business activities or because their sales or income are exempt from VAT, cannot register for VAT.

If you are a private school registering for VAT, you should follow the detailed guidance on registering for VAT if you receive private school fees.

3.3 How VAT affects charities

VAT affects charities in a number of ways:

• charities receive income from a variety of sources, some of which may be liable to VAT if the charity is VAT registered
• charities will be able to claim relief from VAT on some of the goods and services they buy, regardless of whether the charity is registered for VAT
• many of the goods and services that charities buy will be subject to VAT, regardless of whether the charity is registered for VAT
• charities that are VAT registered may be able to reclaim some of the VAT they’re charged from HMRC

3.4 When VAT will be charged

Goods and services are divided into different categories, which determine whether VAT will be charged.

3.4.1 Outside the scope

Certain activities carried out by charities are not covered by the VAT system and are not subject to VAT. An example of outside the scope income is a freely given donation where the donor gets nothing in return for their money. A typical example of an outside the scope expense is payment of employees’ wages.

3.4.2 Taxable

These are goods and services that are standard-rated, reduced-rated or zero-rated when sold by a business, which could include a charity, that’s registered for VAT:

• the standard rate is charged on most goods and services
• the reduced rate is charged on goods and services listed in Schedule 7A to the VAT Act, examples include children’s car seats and domestic fuel and power
• the zero rate applies to goods and services listed in Schedule 8 to the VAT Act, examples include food, books and passenger transport

Find the rate of VAT for goods and services.

3.4.3 Exempt

Some goods and services are exempt from VAT when sold by a business, which could include a charity. This means that no VAT is payable, but, equally, the organisation making the supply cannot normally reclaim any of the VAT on the related expenses, see paragraph 3.7.3 for more information.

Goods and services that are exempt from VAT are listed in Schedule 9 to the VAT Act. Examples include insurance and health care.

3.5 VAT that charities must charge

A VAT-registered charity must charge VAT on all the standard-rated and reduced-rated goods and services they sell. The charity does not charge VAT on any income from non-business, zero-rated or exempt sales. The treatment for VAT purposes of a number of activities commonly carried out by charities can be found in section 5.

3.6 VAT that charities must pay

A charity will pay VAT on all standard-rated or reduced-rated goods and services they buy from VAT-registered businesses.

VAT-registered businesses can sell certain goods and services to charities at the reduced rate or zero rate. See section 6 for more information.

3.7 VAT that a charity can reclaim

A charity needs to consider the VAT on its expenses in 3 stages.

3.7.1 Stage 1, non-business (outside the scope)

A charity cannot reclaim any VAT it is charged on purchases that directly relate to non-business (outside the scope) activities. Section 4 gives further advice on how to decide if a charity’s activities are non-business.

Once a VAT-registered charity has decided which of its activities are non-business it will also have to consider how much of the VAT on its general expenses (such as telephone and electricity) relate to those activities. The charity will not be able to reclaim the proportion of VAT that relates to non-business activities. There are a number of methods a charity can use to calculate this proportion. Some methods are detailed in VAT guide (VAT Notice 700). VAT that the charity establishes as relating to its business activities is input tax.

3.7.2 Stage 2, taxable sales

A VAT-registered charity can reclaim all the input tax it is charged on purchases which directly relate to taxable goods or services it sells.

A charity that is not VAT registered will not be able to recover the VAT it is charged on standard-rated or reduced-rated goods it buys from VAT-registered businesses.

3.7.3 Stage 3, exempt

A VAT-registered charity cannot reclaim the input tax it has been charged on purchases that relate to exempt activities unless these are below a set level (known as the de minimis limit).

In order to determine whether a charity is below the de minimis limit in any VAT accounting period or tax year it needs to:

1. Calculate the input tax that directly relates to exempt activities.
2. Calculate the proportion of input tax on general expenses (after adjustment for non-business activities), such as phone and electricity, that relates to exempt activities.
3. Add the 2 amounts together.

If the total exempt input tax is below the de minimis limit, then the charity can reclaim it. For details of the current de minimis limit and further information on how to calculate the proportion of VAT reclaimable see Partial exemption (VAT Notice 706).

3.8 Accounting for VAT

At set intervals, normally every 3 months, a VAT-registered charity will complete a VAT Return. This details the VAT the charity has charged on sales of standard-rated and reduced-rated goods and services, and the VAT it has paid on goods and services it has bought that relate to taxable sales.

If the VAT on the charity’s sales is more than the VAT on its purchases the charity must pay the excess to HMRC. But if the VAT on the purchases is more than the VAT due on the sales the charity can reclaim the difference from HMRC.

There are a number of different accounting schemes available for VAT-registered businesses including:

• monthly accounting
• the VAT Cash Accounting Scheme
• the VAT Annual Accounting Scheme

If a charity and its trading subsidiaries are VAT registered it may be possible, under certain conditions, for them to register as a VAT group. See VAT Notice 700/2: group and divisional registration for more information.

4. Deciding whether your activities are business or non-business

Although charities may not be deemed to have any business activities under other laws, the definition of business for VAT purposes is governed by specific VAT principles. These principles are based on UK VAT law, and the findings of many VAT tribunal and High Court decisions.

This means that even though an activity may be performed for the benefit of the community or in the furtherance of charitable aims and objectives, it may still be deemed a business activity for the purposes of VAT.

4.1 Business test

An organisation that is run on a not-for-profit basis may still be regarded as carrying out a business activity for VAT purposes.

To decide if an activity is a business activity for VAT purposes, you need to consider whether there is a direct link between the services received and the payment made.

You should apply a 2-stage test.

Stage 1: The activity results in a supply of goods or services for consideration

This requires the existence of a legal relationship between the supplier and the recipient.

The first step is to consider whether the supply is made for a consideration. An activity that does not involve the making of supplies for consideration cannot be a business activity for VAT purposes.

Stage 2: The supply is made for the purpose of obtaining income (remuneration)

An activity is not economic just because a payment is received. It must also be carried out for the purpose of obtaining income (remuneration), even if the charge is below cost.

5. VAT treatment of income received by charities

This section explains the VAT treatment of the most common income producing activities undertaken by charities. This list is not exhaustive. If the activity that you’re contemplating does not appear in the list, you will first need to determine whether or not it is a business activity, see paragraph 4.1.

Business activities in the UK can be assumed to be taxable at the standard rate unless specifically reduced-rated, zero-rated or exempted from VAT in law. For more information see VAT guide (VAT Notice 700).

5.1 Admission to premises

Some charities admit visitors to places of interest such as historical monuments, gardens, exhibitions, concerts. Where this is done for a charge it is a business activity.

5.1.1 How charities should treat income received from fixed admission charges

If the charity is registered for VAT then they must account for VAT on this income at the standard rate. But there are 2 exceptions:

(a) if the income received is for admittance to a fundraising event, then the income is exempt from VAT, see paragraph 5.9 and Charity fundraising events: exemptions.

(b) if the income received is covered by the exemption for admission to cultural events. Charities may be able to treat admission to museums, galleries, art exhibitions, zoos and theatrical, musical or choreographic performances as exempt from VAT. Further information on the conditions for the cultural exemption can be found in Admission charges to cultural events (VAT Notice 701/47).

5.1.2 How charities should treat requested donations in return for admission

In order for a donation to be outside the scope of VAT it should be freely given, with nothing received in return. If admission to the premises is conditional upon payment, the monies received are not donations and VAT must be accounted for at the standard rate. But if admission to the premises is not dependant on a payment then the monies received are donations and are outside the scope of VAT.

A charity which ‘suggests’ an amount that visitors may wish to contribute, but does not insist on payment of that amount before allowing admission can treat the amounts received as donations. See paragraph 5.9 and Charity fundraising events: exemptions.

5.1.3 If the charity makes no charge for admission

If a charge is not made then there is no business activity and any monies received can be treated as a donation and outside the scope of VAT, but see paragraph 5.12 if the charity is a museum or gallery.

5.2 Advertising services

Charities sometimes sell advertising space in their own brochures, programmes, annual reports or similar. The sale of such advertising space is a business activity and is normally standard-rated, the sale of such space can be zero-rated if supplied to another charity, see paragraph 6.1.1.

But if 50% or more of the total adverts in a publication are clearly placed by private individuals the charity can treat all the sums received as donations and outside the scope of VAT.

5.2.1 Private advertisements

A private advertisement makes no reference to a business. An example of a private advertisement is one that says ‘good wishes from (or ‘space donated by’) John and Susan Smith’, but not those with otherwise similar wording taken out by, ‘John and Susan Smith, Grocers, 49 High Street, Anytown’.

5.2.2 Fundraising events

The sale of advertising space in brochures or programmes for a fundraising event is exempt from VAT. But the sale of such space to another charity can be zero-rated. See Charity fundraising events: exemptions.

5.3 Affinity credit cards

A charity may receive payments from a bank, building society or other financial institution in return for the charity endorsing that institution’s credit card and recommending its use to the charity’s members or supporters. This is a business activity and the payments would normally be treated as standard-rated as being in return for marketing services provided to the financial institution.

But we recognise that a large element of these payments could be a contribution towards charitable funds and not payment for services rendered so we allow charities to treat part of these payments as standard-rated and the remainder as outside the scope of VAT. For more information see section 8.

5.3.1 If the charity provides more than marketing services and acts as an intermediary

A charity will be acting as an intermediary in arranging a contract between its members and a credit card provider where it:

• stands between the parties to a contract in the performance of a distinct act of negotiation, without having any interest of its own in the terms of the contract
• brings the 2 parties to the contract together
• undertakes preparatory work, such as completing or assisting with completion of application forms, forwarding forms to the credit card company, and making representations on behalf of either party

We do not see clerical tasks, such as providing a list of names or access to a database as intermediary services. If a charity is providing intermediary services the payment they receive from the credit card provider is exempt from VAT.

5.4 Ambulance services

5.4.1 The liability of ambulance services

The supply of transport services for sick or injured persons is exempt from VAT, subject to the following conditions, the:

• passengers being transported must be sick or injured
• transport must form part of a journey to or from a place of medical treatment
• vehicle in which the person is transported must be ‘specially designed’ for the purpose of providing such transport

5.4.2 Specially designed definition

To qualify as ‘specially designed’, a vehicle must have the facility to secure a recumbent person on a stretcher or be fitted with a ramp or a lift, and clamps sufficient to enable a person in a wheelchair to be safely wheeled on, transported in, and wheeled off the vehicle. The term ‘specially designed’ is not restricted to road vehicles, and can apply in principle to helicopter air ambulances and other forms of rescue transport. Neither is the term restricted to emergency vehicles.

Charities providing ambulance services are also entitled to relief from VAT on the purchase of a ‘specially designed’ vehicle, the adaptation of a vehicle to a ‘specially designed’ vehicle and the repair and maintenance of such a vehicle. For more information see Charity funded equipment for medical and veterinary uses (VAT Notice 701/6).

5.4.3 If the charity provides transport other than in an ambulance

Passenger transport in vehicles not ‘specially designed’ such as cars or minibuses is normally standard-rated. But passenger transport in vehicles designed to carry not less than 10 people may qualify for zero rating, see The VAT treatment of passenger transport (VAT Notice 744A) for more information.

5.5 Charity shops and sales of goods

The sale of donated and bought-in goods by charities and their trading subsidiaries is a business activity. The VAT treatment of the income from these sales depends upon the circumstances and the nature of the goods.

5.5.1 How charities should treat income received from the sale or hire of donated goods

The sale, hire or export of donated goods by a charity or its trading subsidiary (where that subsidiary distributes its profits to the parent charity) is zero-rated. Zero rating is subject to the following conditions, the goods must:

• have been donated to the charity or trading subsidiary
• be made available to the general public, or to 2 or more persons who are disabled or receiving certain means tested benefits

Certain goods, such as second-hand toys and electrical equipment, which are prevented under safety legislation from being sold to the general public, will still qualify for zero rating when sold to scrap merchants, as would the sale of scrap clothing to rag merchants.

Zero rating will not apply if either the:

• sale, hire or export of the goods is made as a result of any arrangement between the donor, the charity, the trading subsidiary or the buyer prior to the goods being made available to the public
• goods are used for any other purpose after donation other than being available for sale, hire or export to the general public, for example, items of office furniture donated for sale but which are first used by the charity in its offices will not qualify for zero rating

5.5.2 If the charity sells donated goods at a fundraising event

If a charity sells donated goods at a qualifying fundraising event, for example by auction, then the income is zero-rated. See paragraph 5.9 and Charity fundraising events: exemptions.

5.5.3 If the charity buys in goods to sell

If a charity buys in goods to sell on it will have to account for VAT at the standard rate on the sale of them, unless they are goods that are zero-rated by statute such as children’s clothes or books. For more information on zero-rated goods refer to the VAT guide (VAT Notice 700).

Bought-in goods sold at qualifying fundraising events are exempt from VAT, see paragraph 5.9 and Charity fundraising events: exemptions.

The charity’s entitlement to reclaim the VAT it has been charged on the purchase of the goods will be affected if it sells them exempt from VAT.

5.5.4 How VAT-registered businesses treat goods donated to a charity for sale

A VAT-registered business can zero rate the donation of goods to a charity or its trading subsidiary provided that the goods are to be offered for sale.

5.6 Catering

Catering is a business activity, normally liable to VAT at the standard rate. See Catering, takeaway food (VAT Notice 709/1) for more information.

Some catering can be exempt from VAT when carried on by a charity. For example, catering supplied as part of welfare services, see paragraph 5.18, such as meals for residents of care homes, and supplies of food and drink (but not alcohol) from trolleys, canteens and shops to patients in hospitals or inmates in prisons.

5.6.1 Catering provided as part of a fundraising event

Where catering is provided as part of a fundraising event the proceeds are exempt from VAT. See paragraph 5.9 and Charity fundraising events: exemptions.

5.7 Education, research and training

Charities that supply education, research or training should read Education and vocational training (VAT Notice 701/30) for more information.

5.8 Free export of goods

The supply of goods from the UK to another country free of charge (usually in the form of relief-aid) is a business activity and is taxable at the zero rate. This enables charities that export aid to register for VAT and reclaim any input tax that they are charged on obtaining and exporting the goods.

5.9 Fundraising

Fundraising can take a number of forms, from the soliciting of donations and sponsorship to a wide range of business activities, some of which already appear in this section. Set out in the following paragraphs are some of the most common ways of raising funds.

5.9.1 Donations

A donation is outside the scope of VAT provided that it is freely given, with nothing supplied in return. VAT will not have to be accounted for on any monies received.

5.9.2 Fundraising events that qualify for exemption

Events clearly organised and promoted primarily to raise money for the benefit of the charity (or other qualifying body) are exempt from VAT, subjectprovided tothey certainare conditions.advertised as a fundraising event. The exemption covers admission fees for the event and any other income generated at the event, for example, sale of commemorative items or food. Events which are not organised to raise funds, but which incidentally make a profit, do not fall within the exemption.

Only certain types of eventevents are eligible and these events are restricted to 15 events of the same kind in a financial year at any one location by the charity.charity (or other qualifying body).

The exemption does not extend to the normal trading activities of the charity (or other qualifying body) nor to income generated after the event, for example, the sale of surplus commemorative items or the sale of video and audio recordings of the event after the event has taken place.

The exemption does not extend to certain ‘charity challenge events’, see paragraph 5.9.4.

For further information, see Charity fundraising events: exemptions.

5.9.3 Sponsored events in the UK

Many charities organise walks, runs, swims and other similar sponsored events or arrange for teams of representatives to participate in these events in order to raise funds.

If a charity is organising and promoting the event it may be able to take advantage of the fundraising exemption.

Sometimes a charity may be able to organise an exempt fundraising event in association with a different event which may or may not be an exempt fundraising event in its own right. An example might be a national sporting event where the charity plans to have a marquee and hold an auction of sporting memorabilia. The charity can use the fundraising exemption as long as the event it is organising meets the conditions set out in Charity fundraising events: exemptions.

But many events that individuals take part in to raise funds for charity will not fall within the fundraising exemption, for example a commercially organised sports event such as a marathon or triathlon. Charities need to carefully consider the VAT implications of the income they receive from such events.

In many cases the charity will pay for places within a commercially organised event, and then offer those places to individuals. Where a charity allows individuals to take part in the event regardless of the amount they raise, and the individuals do not receive any benefits in return, the monies they raise can be treated as a donation and outside the scope of VAT.

We do not consider the following to be benefits:

• provision of free training and health advice
• a free t-shirt, running vest or similar that clearly portrays the charity the individual is taking part on behalf of
• free massages and support for physical well-being during the event
• free pre-event meeting, which may include free professional advice or support, a simple meal, energy drinks and encouragement from the charity and other participants
• free post-event meeting, which may include medical treatment or advice, changing facilities, light refreshments and gives the charity the opportunity to thank participants

Provision of free travel or accommodation and other benefits or ‘gifts’, such as bikes or watches are benefits. If a charity provides such benefits the amount raised by the participant will be taxable at the standard rate.

Some charities require individuals to pay a registration fee or insist that they raise a minimum amount of sponsorship before they can take part in the event. This is effectively an entry fee and is taxable at the standard rate. Any payment in excess of the minimum amount can be treated as a donation and outside the scope of VAT. Where this situation occurs the charity will be entitled to reclaim some of the VAT it incurs on its expenses.

If a charity asks individuals to ‘pledge’ or ‘commit’ to raise a certain amount of sponsorship, but do not insist on any payment before allowing the individual to take part in the event, the total amounts raised can be treated as donations and outside the scope of VAT. A charity can encourage individuals to pass on sponsorship money as they receive it, but cannot insist on receiving a certain amount before allowing the individual to take part.

Some charities offer prizes to top fundraisers. These are not benefits for VAT purposes and does not affect the VAT treatment of income from participants.

5.9.4 Charity challenge events

Many charities organise treks, bike rides and other sponsored events in order to raise funds. These are usually arranged to include travel and accommodation and are often known as ‘charity challenge events’. You can find detailed information on charity challenge events in section 10.

5.9.5 Sponsorship of a charity

Many charities receive money, goods or services from sponsors. Where the charity is obliged to provide the sponsor with a significant benefit in return the sponsorship is a business activity and is taxable at the standard rate. But if no significant benefits are provided the charity may be able to treat the income as non-business. We accept that giving a flag or sticker to a donor, or naming a donor in a list of supporters is insignificant. For more information see Sponsorship (VAT Notice 701/41).

Small charities should note that income from taxable sponsorship could put them over the VAT registration limit.

5.9.6 Mixed sponsorship and donations

Charities will often receive both sponsorship and donations at the same time. Provided the donation is entirely separate from your sponsorship agreement, or your sponsorship agreement document makes clear which part is payment for services, and which is a donation, you are not required to account for VAT on that donation. However, it must be clear that any benefits your sponsor receives are not conditional on the making of the donation or gift.

Where a charity (or other non-profit making body) agrees to let a commercial business use its name in order to raise donations, there is a supply of the benefit to the commercial business of increasing sales. However, there is no need for all the payments to be assumed to be made in return for the benefit. The value of that benefit must be calculated and a fair value stipulated in the contract. The remainder can be treated as a donation from the commercial business to the charity, and is outside the scope of VAT.

For example, where a retailer allows customers to vote on which charities will receive donations. While this activity might result in increased sales for the retailer, it is not seen as commercial sponsorship because any benefit received by the retailer may be seen as insignificant. Consequently, the payments received are regarded as outside the scope of VAT.

It is often regarded as good practice for charities to enter into 2 agreements with corporate sponsors when entering into ‘charity of the year’ or similar arrangements. The first is between the charity’s subsidiary and the sponsor over the granting of publicity rights. The second is between the main charity and the sponsor to receive the donation. In this case, the donation will be outside the scope regardless of whether a minimum donation is promised.

A further variant on the ‘charity of the year’ approach is that the business agrees to promote giving by its employees and customers to the charity. In this case, none of the donations by employees of the business and customers will be treated as consideration for a taxable supply. This also applies to any guarantee arrangement whereby the business agrees to make up any shortfall in the fundraising target for the campaign.

5.10 Grant funding

Charities often receive funding to support their charitable activities. If funding is freely given, with nothing supplied in return, then no VAT is due as the funding is not consideration for any supply and therefore is outside the scope of VAT.

But some funding may be given in return for goods or services supplied by the charity. Such funding is consideration for a supply and VAT may be due on the income if the goods or services supplied by the charity in return are taxable at either the standard or reduced rate.

Often funding is given subject to the provisions of a contract or agreement, the terms of which may be indicative of the nature of the funding.

But it’s important to note that many such contracts or agreements are drawn up purely to make sure that the funds are used for the intended purpose. It is important not to confuse ‘good housekeeping’ with supplies of goods or services. Attaching conditions or safeguards to the payment of grants to make sure that the money is spent correctly does not turn it into consideration for a supply. A contract or agreement can be oral as well as written.

Additionally, certain ‘benefits’ to the funder, for example copies of reports, may arise as a result of necessary safeguards to make sure the money is spent correctly and that the end product is put to proper use. Usually where these are incidental to the primary purpose of the project and are minimal in relation to the amount of funding, the funding is not seen as consideration for a supply.

5.10.1 How a charity should decide whether funding is consideration for a supply

To decide whether funding is consideration for a supply a charity, consider the following:

• does the donor receive anything in return for the funding
• if the donor does not benefit, does a third party benefit instead, and if so, is there a direct link between the money paid by the funder and the supply received by the third party
• are any conditions attached to the funding, which go beyond the requirement to account for the funds, commonly referred to as ‘good housekeeping

If the answer to one of the questions is ‘yes’ it indicates that the funding may not be freely given and may be consideration for a supply.

The following example may help to illustrate the difference between ‘grant funding’ which falls outside the scope of VAT and ‘third party funding’ which is payment by one party on behalf of someone else and is subject to VAT.

A Citizens Advice Bureau (CAB) provided free legal, and other advice. It received grant funding from, amongst others, the local authority. The local authority, as a condition of grant funding, required a service level agreement to be entered into by the CAB, detailing opening times and levels of service. On this basis the CAB viewed the funding, and linked agreement, to be consideration for a taxable supply of services to the local authority.

On appeal to the VAT tribunal it was found that there was nothing in the service level agreement to support the CAB’s view. In the tribunal’s view, although strings were attached to the grant given by the local authority, that in itself did not create a supply. This was because the local authority did not derive any direct benefit from the advice given. Its only benefit was the indirect knowledge that it had helped fund a service that might be of benefit to its citizens. The strings attached to the grant funding were simply good housekeeping measures by the local authority. The only supplies made were to the local citizens and, as these were mainly free of charge, there was no supply for VAT purposes.

The only exception is where legal advice is given by a CAB to a citizen who qualifies for legal aid. In such cases the legal advice given is subject to VAT. This is because the CAB has received specific payment, from a third party, for specific advice given to a citizen.

5.10.2 VAT implications for the use of the funding

Where a charity is supported by outside the scope funding, this does not determine the nature of any supplies it makes. In other words, it does not follow that outside the scope income means that the charity will only have non-business activities.

A charity needs to ask itself what activities it will be spending the funding on and whether those activities are business for the purposes of VAT. See section 4 for more guidance on business.

5.11 Hiring out buildings, including village halls

The hiring out of a building for a fee is normally a business activity and the fees received are normally exempt from VAT. But if a charity (as landlord) has opted to tax the building it must treat the fees received as standard-rated. But, the option to tax will generally not apply if the person hiring the building (or part of a building) from the charity is either:

• intending to use it as a dwelling, such as a residential flat above a charity shop
• another charity who intends to use it for a relevant charitable purpose, for use as a village hall or similarly, or for a non-business purpose
• intending to use it for a relevant residential purpose, such as a residential home for children or disabled people, or a hospice

Where the hire of the building (or part of a building) is incidental to the provision of facilities, such as the hiring of facilities for playing sport, the supply will normally be standard-rated. But where rooms are hired as facilities for playing sport for a period exceeding 24 hours or for a series of 10 or more sessions the supply may be exempt, subject to certain conditions.

See Land and property (VAT Notice 742) and Opting to tax land and buildings (VAT Notice 742A) for more information. If you’re hiring out a building you could contact VAT general enquiries.

5.12 Museums and galleries

Admission to a museum or gallery for no charge is a non-business activity. Normally this means that no input tax can be reclaimed. This paragraph explains special rules for some museums and galleries. If the charity makes an admission charge read paragraph 5.1.

5.12.1 When a museum or gallery offering free admission can reclaim VAT

Free access to a museum or gallery is a non-business activity, and any VAT on goods and services bought in respect of this activity is normally irrecoverable. But in certain circumstances the government will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an order made by HM Treasury.

The museum or gallery may have other business activities, for example catering and the sale of books and postcards, for which normal VAT recovery rules will apply.

For full details of this scheme refer to VAT Refund Scheme for museums and galleries (VAT Notice 998).

5.13 Membership

The provision of membership benefits to members of a club or association is a business activity. The VAT liability of a membership subscription will depend on the benefits being supplied.

In most cases a package of benefits is supplied and the provider has to decide whether he is making a single or multiple supply. If there is one principal benefit, to which all of the other benefits are incidental, the whole subscription is treated as a single supply and the VAT liability will follow that of the principal benefit.

For example, if the principle benefit offered by a theatre club to its members is free theatre tickets, and other benefits, such as the right to receive copies of advertising literature, are incidental, then the theatre club would treat the subscription as a single supply of the right of admission. This would either be taxable at the standard rate or exempt if the provider was entitled to exempt its admission charges under the cultural exemption, see paragraph 5.1.

But as a concession, charities and non-profit making organisations can treat their single supplies of membership benefits as multiple supplies. This means that the VAT treatment of each benefit can be considered individually and the subscription charge apportioned. This means that the supply of magazines or handbooks to members can normally be zero-rated. For more information see Clubs and associations’ VAT responsibilities (VAT Notice 701/5) and Zero rating books and printed matter (VAT Notice 701/10).

5.14 Patron and supporter schemes

Many cultural organisations operate patron or supporter schemes, which offer benefits in return for a minimum payment. Benefits may include free admission to special exhibitions, the right to receive regular publications or discounts on shop purchases. The minimum payment is business income and is standard-rated. But if one of the benefits to patrons or supporters is the right to receive publications you may be able to treat part of the payment as zero-rated.

If a patron or supporter pays more than the minimum amount you can treat the excess as a donation and outside the scope of VAT as long as the patron or supporter is aware that scheme benefits are available for a given amount, and that anything in excess of that amount is a voluntary donation. This should be explicit in the patron or supporter scheme literature.

5.15 Sea rescue

The supply of sea rescue services for no charge is a non-business activity.

5.16 Sports membership and sporting events

The provision of certain kinds of membership to sports clubs and associations, and admission to some sporting events, by certain non-profit making organisations is a business activity, but is exempt from VAT.

See Sport supplies that are VAT exempt (VAT Notice 701/45).

5.17 Supplies of staff between charities

Income received for the supply of staff is a business activity and is normally taxable at the standard rate. But if staff are jointly employed there is no supply of staff for VAT purposes. Staff are regarded as jointly employed if their contracts of employment or letters of appointment make it clear that they have more than one employer and who the employers are. See Companies that supply staff and staff bureaux (VAT Notice 700/34) for more information.

In some circumstances the income from the hire or loan of staff from one charity or voluntary organisation to another can be treated as non-business and outside the scope of VAT. This is subject to the following conditions, the:

• employee has been engaged only in the non-business activities of the lending charity or organisation and is being seconded to assist in the non-business activities of the borrowing charity or organisation
• payment for the supply of the employee’s services does not exceed the employee’s normal remuneration

A ‘voluntary organisation’ is a body who operates other than for profit, but does not include any public or local authority. ‘Normal remuneration’ means the total costs incurred by the lending charity or organisation in employing the member of staff including National Insurance and pension scheme contributions.

5.18 Welfare

Welfare services provided by charities, public bodies and state-regulated private welfare institutions or agencies are normally seen as business and are exempt from VAT, but see paragraph 5.18.2.

You can find more information in Welfare services and goods (VAT Notice 701/2).

5.18.1 Welfare services

Welfare services are directly connected with:

• the provision of care, treatment or instruction designed to promote physical or mental welfare of elderly, sick, distressed or disabled people, distressed people do not include the unemployed
• care and protection of children or young people
• the provision of spiritual welfare provided by a religious institution as part of a course of instruction or a retreat, it must not be designed primarily to provide recreation or a holiday

5.18.2 Welfare services that can be treated as non-business

Charities that provide welfare services significantly below cost, to distressed persons for the relief of their distress, may treat these supplies as non-business and outside the scope of VAT.

‘Significantly below cost’ means subsidised by at least 15%, and the subsidy must be available to everyone. The charity must be providing the service to the distressed individual, and not a local authority.

By ‘distressed’ we mean someone who is suffering severe mental or emotional pain, anguish or financial straits. It denotes severe, rather than mild emotional or physical discomfort.

An example of a non-business welfare service would be a night shelter for the homeless where a nominal charge of £1 per bed per night is made by the charity. But the cost to the charity of providing the shelter might be £20 per bed per night.

6. VAT reliefs charities can obtain on their purchases

Certain goods and services are zero-rated or reduced-rated when bought by charities, regardless of whether the charities are registered for VAT or not.

For each of these reliefs specific conditions have to be met. Charities wishing to take advantage of these reliefs must provide their suppliers with eligibility declarations certifying that the conditions have been met for that relief. See paragraph 6.2 for more information on eligibility declarations.

6.1 VAT reliefs available

6.1.1 Advertising and goods connected with collecting donations

The supply of advertising to a charity is zero-rated. The zero rating covers advertisements on any subject, including staff recruitment. A charity can also buy pre-printed collecting boxes, envelopes and appeal letters at the zero rate. Low cost lapel stickers, emblems and badges that a charity gives in acknowledgement of a donation can also be zero-rated. More information can be found in Goods or services supplied to charities (VAT Notice 701/58).

If a printer produces a package of printed material for a charity, some of which is zero-rated and some of which is standard-rated, the printer may be able to zero rate the entire package. This is known as the package test. More information on the package test can be found in Zero rating books and printed matter (VAT Notice 701/10).

6.1.2 Aids for the disabled

Supplies to charities of certain goods and services which the charities make available to disabled people for their personal or domestic use are zero-rated.

More information can be found in Reliefs from VAT for disabled and older people (VAT Notice 701/7).

6.1.3 Construction

The construction of buildings, and certain works to protected buildings, intended to be used solely for non-business purposes or as a village hall or similar can be zero-rated subject to certain criteria being met. More information can be found in VAT Notice 708: buildings and construction.

Use the 2-stage test explained in section 4.1 to decide whether an activity is a business activity for VAT purposes.

From 1 June 2022, charities need to apply the test when:

• deciding if their activities are business or non-business

• considering whether any of the building projects to be used for their activities are eligible for VAT at the zero rate

6.1.4 Certificates issued to get certain construction works at zero rate

Certificates issued before 1 June 2022 will continue to be valid for the period covered by the certificate. This means the certificate will be valid from the date issued to the estimated date of completion of the relevant works.

In certain circumstances a charity can also benefit from zero rating for the construction of a ramp, widening a doorway or passage, or providing, extending or adapting a washroom or lavatory. For more information see Reliefs from VAT for disabled and older people (VAT Notice 701/7).

The construction reliefs are complex so contact Charities and Community Amateur Sports Clubs to check entitlement to zero rating before commencing a project.

6.1.5 Drugs and chemicals

A charity engaged in medical or veterinary research can buy substances directly used for testing, or for mixing with other substances in the course of that research, at the zero rate.

A ‘substance’ can be natural or artificial, and can be in solid or liquid form or in the form of a gas or vapour. If the substance is bought in the form of gas the zero rating will also apply to the cylinder rental.

6.1.6 Equipment for producing ‘talking’ books and newspapers

Charities providing talking books or newspapers for the blind and severely visually impaired people can get zero rating for purchases of sound recording and reproduction equipment (or parts and accessories for such equipment) that has been designed or specially adapted for recording or reproducing speech on magnetic tapes for the benefit of such persons. In the case of reproduction equipment, zero rating will not apply where the equipment is made available for use by anyone other than a blind or severely visually impaired person. But it’s acceptable for a charity worker to prepare equipment for use by a blind or severely visually impaired person, for example by recording newspaper articles on to it. The zero rating also covers radios and cassette recorders bought by charities for free loan to the blind, and the repair or maintenance of any equipment mentioned in this paragraph.

The supply of cassette tapes is standard-rated.

6.1.7 Lifeboats, slipways and launching and recovery equipment

A charity providing rescue or assistance at sea can buy following goods and services at the zero rate:

• any vessel for use as a lifeboat, and its repair and maintenance
• lifeboat launching and recovery equipment, and its repair and maintenance
• the construction and modification of lifeboat slipways, and their repair and maintenance
• spare parts and accessories for use with these vessels, equipment and slipways
• equipment of a kind ordinarily installed, incorporated or used in a lifeboat

6.1.8 Medical and scientific equipment

The supply to a charity of certain goods that the charity will donate to an eligible body, such as a UK health authority, a hospital, a research institution or certain other charitable institutions, can be zero-rated.

Where a charity is also an eligible body it may buy certain goods at the zero rate for its own use. Zero rating will also apply to certain goods bought by a charity whose sole purpose is to provide a range of care services to meet the personal needs of disabled people, or who provides transport services for disabled people.

More information on the goods that qualify for zero rating can be found in Charity funded equipment for medical and veterinary uses (VAT Notice 701/6).

6.1.9 Medicinal products

A charity engaged in the treatment or care of people or animals, or in medical or veterinary research, can buy medicinal products at the zero rate.

A ‘medicinal product’ is a substance presented as a medicine, or an ingredient for a medicine, capable of being administered to people or animals for a medicinal purpose. The zero rate covers medicinal products bought by a charity for the purpose of testing the efficiency of those products.

‘Medicinal purpose’ means:

• treating or preventing disease
• diagnosing disease, or ascertaining the existence or degree of a physiological condition
• contraception
• inducing anaesthesia
• otherwise preventing or interfering with the normal operation of a physiological function, whether permanently or temporarily, and whether by terminating, reducing or postponing, or increasing or accelerating the operation of that function, or in any other way

6.1.10 Rescue equipment

Charities providing first aid or rescue can buy specialist communication, light enhancing and heat detecting equipment at the zero rate.

For more information, see Charity funded equipment for medical and veterinary uses (VAT Notice 701/6).

6.1.11 Resuscitation training models

The supply to a charity of a resuscitation training model that is to be used in first-aid training in cardiopulmonary resuscitation or defibrillation techniques is zero-rated. ‘Cardiopulmonary resuscitation’ means a combination of expired air ventilation and chest compression.

6.2 Eligibility declarations

An eligibility declaration must be completed by the charity for each of the reliefs detailed in this section. Examples of these declarations can be found in Charity funded equipment certificates (VAT Notice 701/6 supplement).

It’s the supplier’s responsibility to make sure that the correct VAT rate is applied. You must take reasonable steps to check with the charity any condition that they cannot verify for themselves. Any additional verifications carried out should be recorded and kept with the declaration of eligibility.

A charity must give its supplier evidence that it is a charity. If asked for further evidence the charity must be able and willing to give it before VAT relief can be given.

6.3 If a charity based in Northern Ireland buys goods from an EU member state

VAT-registered charities in Northern Ireland that buy goods in member states of the EU as part of their business activities must account for any VAT due on the acquisitions at the appropriate UK VAT rate on their next VAT Return. No tax will be due on the acquisition of goods which would be zero-rated if bought by a charity in the UK. You can find more information on moving goods between Northern Ireland and the EU and the accounting requirements in The single market (VAT Notice 725).

6.4 If a charity buys goods from outside the UK

When a business (which may include a charity or its trading subsidiary) imports goods into the UK, VAT is normally due at place of entry to the UK. But charities may be able to claim relief from VAT on some imports. See Notice 317: imports by charities free of duty and VAT for more information.

7. Fuel and power

7.1 Reduced rate of VAT

Charities have to pay VAT on supplies of fuel and power. But charities can claim the reduced rate where fuel and power is supplied for a qualifying use. Qualifying use means either supplied for use in:

• a dwelling or certain other types of residential accommodation, such as a children’s home, hospice or care home for the elderly or disabled
• charitable non-business activities, such as free day care for the disabled

Additionally, deliveries of certain small quantities of fuel and power are automatically treated as being for a qualifying use. For example, electricity supplied at a rate not more than 1,000 kilowatt hours a month or a delivery of not more than 2,300 litres of gas oil, will qualify for the reduced-rate whatever the use of the building.

If the fuel and power is supplied partly for a qualifying use the supplier may have to apportion the supply. Charities should provide the supplier with a certificate declaring the percentage of the fuel and power that will be used for a qualifying purpose. For more information see Fuel and power (VAT Notice 701/19).

7.2 Climate Change Levy

If a charity qualifies for the reduced rate for fuel and power, it will be excluded from the Climate Change Levy.

8. Treatment of income from affinity credit cards

8.1 How to treat income from affinity credit cards

Charities may treat income from affinity credit cards as follows, as long as they are not acting as an intermediary between the card provider and the applicant. See paragraph 5.3.1 for more information on intermediaries. This treatment only applies to income from affinity credit cards and does not extend to any other financial products.

A typical qualifying agreement between the charity and the card provider will provide for the supply by the former (or its trading subsidiary) to the latter of the following services:

• access to the charity’s membership or mailing lists or mailing of the card provider’s promotional literature to members
• endorsement of the card and marketing of the card by the charity to its members or supporters
• the right to use the charity’s name and logo on the card and on the card provider’s promotional literature

Subject to the agreements between the charity and card provider being structured in a qualifying manner, the bulk of the monies received by a charity from the card provider can be treated as outside the scope of VAT.

Typically a card provider will pay an agreed amount to the charity (or its trading subsidiary) on the issue of each new card. Thereafter the card provider pays the charity a percentage of the turnover (value of purchases) on the card.

8.2 How the relief works

The basis of the relief is that payments by card providers to a charity, made solely in respect of the use of the charity’s name and logo, can be treated as contributions for which the charity is not obliged to do anything in return.

To benefit from this treatment there must be 2 separate agreements:

• one agreement, between the charity (or its trading subsidiary) and the card provider should provide for the supply by the charity (or its trading subsidiary) of the necessary marketing and publicity services, access to membership lists and other promotional activity for the card (marketing services) and these supplies are taxable at the standard rate
• a second and separate agreement between the charity and the card provider should provide for contributions to be made by the card provider in respect of the use only of the charity’s name or logo, or both, contributions made under this agreement can be treated as outside the scope

This being the case, part (at least 20%) of the initial payment can be treated as the consideration for the standard-rated business supplies by the charity. The remaining 80% or less of the initial payment, and all subsequent payments based on turnover will be outside the scope of VAT.

9. Explanation of terms

Acquisition

Goods coming into Northern Ireland from an EU member state.

Business

An economic activity, not necessarily for profit, see section 4. Only charities carrying out business activities and making taxable supplies can register for VAT.

Consideration

Consideration means any form of payment either wholly in money, partly in money and partly in something else (such as in part-exchange transactions) or not in money at all (such as in barter transactions).

Exempt

Some business activities are exempt from VAT, for example, the provision of welfare services by a charity. If a charity is carrying out an exempt business activity it does not have to charge VAT, but it cannot normally reclaim any VAT on the goods and services bought in respect of that activity see paragraph 3.7.3. For more information on what goods and services are exempt from VAT see the VAT guide (VAT Notice 700). Charities (and any other business), whose business activities are wholly exempt, are not able to register for VAT.

Input tax

Most goods and services that charities buy from a VAT-registered business will bear VAT, but see section 6 for details of reliefs available to charities. The VAT paid on goods and services bought by a charity in respect of any business activity it carries out is input tax. VAT paid on goods and services a charity buys for any non-business activity it carries out is not input tax, see paragraph 3.7.1.

Charities can only reclaim input tax in respect of taxable business activities, with some exceptions, see Motoring expenses (VAT Notice 700/64) and Business entertainment (VAT Notice 700/65).

Charities cannot normally reclaim any input tax in respect of exempt business activities, see paragraph 3.7.3 and Partial exemption (VAT Notice 706).

Non-business

Any activity which is not a business activity.

Output tax

The VAT that a charity must charge and account for on supplies of taxable goods and services.

Outside the scope

Activities that are not covered by VAT law, for example activities that are non-business, or business activities that take place outside the UK. Charities whose activities are wholly non-business are not allowed to register for VAT. Charities whose business activities take place wholly outside the UK, can register for VAT if those activities would be taxable were they to take place in the UK.

Reduced rate

Reduced rate is the rate of VAT liable on supplies of certain goods and services, for example, domestic fuel and power, children’s car seats, residential renovations and conversions. For more information about what goods or services are reduced-rated see VAT guide (VAT Notice 700).

Standard rate

Standard rate is the rate of VAT liable on all business supplies of goods and services that are not specifically exempted, zero-rated or reduced-rated.

Taxable person

An individual, firm, company, charity and so on who is, or is required to be, registered for VAT. A person who makes taxable supplies above certain value limits is required to be registered.

Taxable supply

Goods and services that are standard-rated, reduced-rated or zero-rated when sold by a business (or charity) that is registered for VAT.

Trading subsidiary

A non-charitable trading company controlled by one or more charities. Most of the VAT reliefs available to charities are not available to trading subsidiaries.

Zero rate

This is the rate of VAT (0%), liable on supplies of certain goods and services, for example, food and children’s clothes. For more information on what goods and services are zero-rated see the VAT guide (VAT Notice 700). Although no VAT is charged on these supplies, any input tax incurred by a charity in the making of zero-rated supplies is recoverable. Unlike exempt activities, charities (and any other business), whose business activities are wholly zero-rated, are able to register for VAT.

10. Charity challenge events

Many charities offer, or encourage participation in, ‘challenge’ events as a way of raising funds. Challenge events often test participants’ physical and mental endurance, and common examples include climbing mountains and cycling or trekking through inhospitable landscapes. Many charities set a target figure that participants should aim to raise through sponsorship.

Charities will often use their trading subsidiaries to arrange these events. The VAT treatment is the same regardless of whether the supply is made by the charity or the trading subsidiary. All references to charities within this section include their trading subsidiaries.

Fundraising events do not qualify for the fundraising VAT exemption if they include either:

• a package of both travel and accommodation
• bought-in accommodation
• more than 2 nights’ accommodation from a charity’s own resources

This guide aims to assist charities to determine the correct VAT treatment of any challenge events they are involved with. This Notice 701/1 flowchart (PDF, 12.1 KB, 1 page) provides further help. Charities involved with challenge events need to consider the following issues.

10.1 Charity asking participant for a payment

If the charity insists that the participant makes a payment before allowing them to take part in the challenge event the charity will be making a supply for VAT purposes.

The payment might consist of a:

• registration fee
• deposit or a payment of a proportion of the target figure that the participant is aiming to raise through sponsorship or both

However you calculate the amount, if the charity insist on payment before allowing the participant to take part then the charity is making a supply. That supply may be of a package to the participant (if you acted as a principal or undisclosed agent) or of agency services in selling the package or holiday for a specialist company who has put the event together (if you acted as an agent). ‘Example 2’ in section 10.4 explains this in detail.

10.2 A charity acting as a disclosed agent, undisclosed agent, or principal

There are different VAT implications depending on whether the charity is acting as either:

• a disclosed agent
• an undisclosed agent or principal

Most charities use the services of a specialist company to organise challenge events, the charity does not want the responsibility of organising the itinerary, accommodation, flights and group leader. If the charity uses a specialist company they will normally have a contract setting out exactly who is responsible for what.

A charity will be acting as a disclosed agent if:

• both the charity and the specialist company have agreed that the charity will act as the company’s agent
• the charity discloses the name of the principal (the specialist company), for example in the event terms and conditions and on all tickets issued
• the charity is not taking any significant commercial risk in relation to the event (for example, the charity does not have any financial liability should something go wrong)

If these agency disclosure conditions are not met (in which case the charity is acting as an undisclosed agent), or the charity acts as a principal, buying and selling the entire event or putting together the challenge event itself, buying travel, accommodation, itinerary and professional guides direct, then the charity must account for VAT using the Tour Operators Margin Scheme (VAT Notice 709/5).

‘Example 3’ in section 10.4 shows the differences between acting as a disclosed agent and a principal (or undisclosed agent) in money-flow terms.

Further advice on agents and principals can be found in VAT guide (VAT Notice 700), Tour Operators Margin Scheme (VAT Notice 709/5) and Travel agents (VAT Notice 709/6) and tour operators. Agent or principal can be a complex area, if you are in any doubt you should contact Charities and Community Amateur Sports Clubs.

If you would like a written ruling you should write to:

Enclose copies of any contracts, correspondence and advertising or marketing material.

10.3 The correct VAT treatment

Charity acting as an agent

If the charity is acting as a disclosed agent it will need to follow the guidance in Travel agents (VAT Notice 709/6).

In this arrangement the participant contracts with the specialist company and the charity receives a commission.

Basically VAT will be due on the commission that the charity charges as an agent, as shown in the following example:

Example 1

A charity promotes a challenge event where participants will walk the Great Wall of China. The charity uses the services of a specialist company VAT registered in the UK and acts as its disclosed agent as explained in paragraph 10.2. The specialist company puts together the package of travel, accommodation, itinerary and guide.

The charity:

• promotes the event to its supporters
• asks participants to pay a non-returnable booking fee of £250 before allocating them a place
• asks participants to raise sponsorship of £3,000
• insists that 50% of the sponsorship target (£1,500) is paid to the charity by the participant 8 weeks before departure date

So, the participants pay the charity £1,750 (£250 booking fee plus £1,500 sponsorship) before the charity allows them to take part in the challenge event. This is the cost of the event and constitutes a supply for VAT purposes made by the specialist company.

The charity, acting as disclosed agent, has agreed with the specialist company that it will receive a commission of £550, and it invoices the specialist company for this amount plus £110 VAT as the commission is taxable at the standard rate. This VAT of £1,100 is due from the charity as output tax (and can be reclaimed by the specialist company as input tax). In practice, the charity can retain the commission and VAT (£660) from the amount collected from the participant and passes what remains to the specialist company.

As the charity has made a taxable supply it can reclaim any UK input tax it has incurred in promoting the event (subject to normal VAT reclaim rules).

Any further money raised by the participant and passed on to the charity is a donation and is outside the scope of VAT provided it is not consideration for other goods or services.

For this structure to work it’s essential that the contracts between the charity, the specialist company and the participant properly reflect the arrangement.

In some instances a charity may act as an agent for companies making individual supplies, for instance where the tour company does not provide transport. Where this happens, the charity might arrange those separate elements on behalf of participants (such as flights or accommodation or catering). If part of the commission received by the charity relates to the charity arranging a separate element, then a proportion of the commission will be subject to different rules from this example, and may be zero-rated or outside the scope of UK VAT. Charities in this situation should read The VAT treatment of passenger transport (VAT Notice 744A) and Travel agents (VAT Notice 709/6).

Similarly, the charity might act as an agent for non-UK principals (such as a non-UK tour operator). Charities in this situation should read Place of supply of services (VAT Notice 741A).

10.4 Charity acting as a principal or undisclosed agent

If the charity is acting as a principal or undisclosed agent it will need to follow the guidance in Tour Operators Margin Scheme (VAT Notice 709/5) (TOMS) to calculate any VAT due.

In summary, VAT will be due on the margin between what it has cost (excluding overheads) the charity to provide a place on the event and what the charity insists on receiving as payment before allowing the participant to take part. For events or packages that take place within the UK, the margin will be taxable at the standard rate. For events or packages which take place outside the UK the margin will be taxable at the zero rate.

The following examples demonstrate the basic principles.

Example 2

Event outside the UK

A charity arranges a challenge event where participants will cycle across part of the Sahara. The charity organises flights, accommodation, food, equipment and the services of expert guides and a small medical team. The cost of these to the charity is £900.

The charity promotes the event to its supporters.

The charity:

• asks participants to pay a non-returnable booking fee of £200 before allocating them a place
• asks participants to raise sponsorship of £2,500
• insists that 50% of the sponsorship target (£1,250) is paid to the charity by the participant 8 weeks before departure date

So, the participants pay the charity £1,450 (£200 booking fee plus £1,250 sponsorship) before the charity allows them to take part in the challenge event.

The charity receives £1,450. A place on the event cost the charity £900 to provide. The margin the charity has made is £550.

The event is taking place outside the UK, so the margin is taxable at the zero rate and no VAT is due. The charity cannot reclaim any VAT it has incurred on the tour elements but it can reclaim, outside the TOMS, VAT on overhead costs incurred in the UK in putting the event package together (subject to normal VAT reclaim rules). Any further money raised by the participant and passed on to the charity is a donation and is outside the scope of VAT provided it is not consideration for other goods or services.

Example 3

Event inside the UK

A charity arranges a challenge event where participants will roller skate around London. The charity organises flights, accommodation, food, equipment and the services of expert guides and a small medical team. The cost of these to the charity is £900.

The charity promotes the event to its supporters.

The charity:

• asks participants to pay a non-returnable booking fee of £200 before allocating them a place
• asks participants to raise sponsorship of £2,500
• insists that 50% of the sponsorship target (£1,250) is paid to the charity by the participant 8 weeks before departure date

So, the participants pay the charity £1,450 (£200 booking fee plus £1,250 sponsorship) before the charity allows them to take part in the challenge event.

The charity receives £1,450. A place on the event cost the charity £900 to provide. The margin the charity has made is £550. The event is taking place inside the UK so the margin is taxable at the standard rate and VAT is due at 1/6 of the margin (that is £91.66).

The charity cannot reclaim any VAT it has incurred on the tour elements but it can reclaim, outside the TOMS, VAT on overhead costs incurred in the UK in putting the event package together (subject to normal VAT reclaim rules).

Any further money raised by the participant and passed on to the charity is a donation and is outside the scope of VAT provided it is not consideration for other goods or services.

10.5 Charity providing accommodation from own resources

If the charity is providing up to 2 nights accommodation from its own resources, and is not providing a package of travel and accommodation, the income from the event will be exempt under the fundraising exemption. See Charity fundraising events: exemptions for full information. The income from the entire event will be exempt as demonstrated in the following example.

Example 4

Accommodation from own resources

A charity arranges a challenge event where participants will race to climb Snowdon. The charity organises 2 nights accommodation and meals in the residential section of a school that it operates. There will be a celebratory disco and prize giving on the second evening. The cost of these to the charity is £75 per person. Participants make their own travel arrangements.

The charity promotes the event to its supporters. The charity:

• asks participants to pay a non-refundable booking fee of £25 before allocating them a place
• asks participants to raise sponsorship of £300
• insists that 50% of the sponsorship target (£150) is paid to the charity by the participant 4 weeks before the event

So, the participants pay the charity £175 (£25 booking fee and £150 sponsorship) before the charity allows them to take part in the race.

As the accommodation is provided from the charity’s own resources, and they are not providing a package of travel and accommodation, the event falls within the fundraising exemption. The £175 the charity has received is exempt from VAT. Any other income that the charity receives from sales of drinks and commemorative items at the disco and prize giving will also be exempt. But the charity cannot reclaim any VAT it has incurred in putting the event together.

Any further money raised by the participant and passed on to the charity is a donation and is outside the scope of VAT provided it is not consideration for other goods or services.

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