Are Charities Exempt from VAT? What HMRC Says

Many assume that being a charity means automatic VAT exemption, but questions like “Do charities pay tax?” show just how confusing HMRC rules can be. The truth often depends on what your charity does, not just what it is. This quick guide breaks down what really matters for UK charities when it comes to VAT for charities.

Key Takeaways

• Being a charity doesn’t mean automatic VAT exemption, it depends on what goods or services you provide.

• You must register for VAT if your taxable turnover (including zero-rated sales) exceeds £90,000 in any 12-month period.

Why Charity Status Doesn’t Mean VAT-Free

Just because your organisation is a registered charity doesn’t mean all your income is exempt from VAT. HMRC doesn’t look at your status alone, it looks at what your charity is doing.

Some activities are:

• VAT exempt (e.g. education, welfare), so you don’t charge VAT, but you also can’t reclaim VAT on costs.

• Zero-rated (e.g. selling donated goods), where you charge 0% VAT but can reclaim VAT on related expenses.

• Standard-rated (e.g. catering, event tickets), where you must charge 20% VAT and can also reclaim input VAT.

So, if your charity sells anything or offers services, you need to check how that activity is treated for VAT, not just assume it’s tax-free because you’re a charity.

In short: VAT depends on what you do, not who you are. This is a common misunderstanding not only among charities but also among those looking up whether non-profit organisations' VAT-exempt rules apply automatically, they don’t.

When You Must Register - Even as a Charity

Being a charity doesn’t automatically mean you’re exempt from registering for VAT. You must register if your charity’s VAT-taxable turnover (including zero-rated sales) goes over £90,000 in any 12-month period.

RECOMMENDED READING: Do You Pay VAT on the First £85000? Here’s What HMRC Says!

This includes things like:

• Ticketed events

• Catering services

• Sale of new goods

• Selling donated goods (zero-rated)

But it doesn’t include exempt income like donations, grants, or voluntary gifts with nothing in return.

If you're under the threshold, voluntary VAT registration is still an option. It can help you reclaim VAT on purchases, especially if you work with VAT-registered suppliers or have big running costs. Just be aware of the added admin.

Not sure if your charity needs to register? We’ve helped dozens of organisations figure it out without the stress or guesswork. Book a FREE CALL and let us help you understand what applies to you.

What We Think

The VAT system puts too much pressure on charities to interpret complex rules. The fact that VAT depends on what you do, not who you are, catches a lot of people off guard.

We often see small charities either register too late, miss out on VAT reliefs, or overpay because they’re unsure what counts toward the threshold.

We believe HMRC could do more to make this simpler, especially for organisations focused on doing good, not decoding tax law.

How JAFA Can Help

At JAFA, we simplify VAT for charities. We’ll review your income streams, flag what’s taxable, and help you stay on top of the threshold while staying aligned with Charity Commission expectations.

Our AI-powered bookkeeping tracks everything in real time, and our expert accountants explain what VAT is, how it applies to your charity, and where reliefs might be available, in plain English. 

If you’re unsure where your charity stands, book a FREE CALL today - we’ll walk you through it and help you get it right the first time.