The uncomfortable starting point
Unlike corporation tax (where charities are largely exempt) and business rates (80% relief), VAT gives charities no general exemption. Because most charities aren't making enough "taxable supplies," they usually can't reclaim the VAT on their costs — so VAT is a genuine expense, not a wash. The good news: there are specific, valuable reliefs that reduce what you pay, and they're widely under-claimed. And for CICs and trading social enterprises, VAT works like it does for any business — with a registration threshold to watch. The full guide covers both sides.
Charities: the reliefs worth claiming
Even though you generally can't reclaim input VAT, you can often avoid being charged it in the first place on certain purchases — these zero-rate and reduced-rate reliefs are the ones charities miss:
- Advertising — most advertising bought by a charity (in third-party media) can be zero-rated. Tell your suppliers you're a charity; many don't apply it automatically.
- Certain equipment — some medical, IT and other equipment for charitable use qualifies for zero-rating.
- Construction — building new charitable-use premises can be zero-rated in defined circumstances (a big-ticket saving worth specialist advice).
- Fuel and power — charitable non-business use can qualify for the reduced 5% rate rather than 20%.
These require you to give suppliers the right eligibility declaration — miss it and you pay VAT you needn't have. It's the first thing worth auditing.
CICs and trading social enterprises: register like a business
A CIC is an ordinary company for VAT — no special treatment. If your taxable turnover exceeds the £90,000 threshold (rolling 12 months), you must register, charge VAT and file returns like any business. Below it you can register voluntarily, which pays if your customers are VAT-registered businesses (they reclaim what you charge and you reclaim VAT on costs).
The trading-activity trap for charities
Charities that trade — a shop, a café, paid services — can create taxable supplies, which brings VAT into play and, above the threshold, requires registration. This interacts with the trading-subsidiary question: many charities run significant trading through a subsidiary company, which manages both corporation tax and VAT more cleanly. Getting the structure right avoids nasty surprises.
The quick win Most social-sector organisations we meet are either paying VAT on advertising they could zero-rate, or unaware their growing trading activity is heading towards the registration threshold. Both are avoidable with a five-minute review — and both cost real money if ignored.
Getting it right
VAT is genuinely the fiddliest tax for the sector, and the one where specialist eyes pay for themselves — missed zero-ratings are money lost, and a missed registration threshold means VAT you never charged coming out of your funds. We review your VAT position, apply the reliefs you're entitled to, and handle registration and returns where you trade. See pricing or get started.
