Can Charities Claim Back VAT?
Plenty of charities assume they’re exempt from VAT, but that can be an expensive assumption. Some end up paying VAT they could have avoided, while others reclaim VAT they were never entitled to, and land an assessment when HMRC looks closely.
The truth sits somewhere in between.
Whether your charity can claim back VAT depends on whether you’re registered, and on how HMRC classifies each thing you do. Get those two right and there’s real money to protect. In this article, we look at when a charity can reclaim VAT, when it can’t, and where you stand.
Are charities exempt from VAT?
No, and this is the misunderstanding that costs the most.
Charities pay VAT on standard-rated goods and services just like any business. Charitable status doesn’t switch VAT off.
What charitable status does is open the door to specific reliefs and refund schemes that other organisations can’t use. But the starting position is the same as everyone else: VAT applies unless a rule says otherwise.
When can my charity reclaim VAT?
Only a VAT-registered charity can reclaim VAT, and only on costs tied to its taxable business activities. HMRC sorts everything a charity does into three buckets, and only one of them lets you recover VAT.
- Taxable business activities. Selling goods or services for a charge, at the standard, reduced or zero rate. Think a charity shop selling new stock, paid training, or ticketed services. VAT on the costs behind these is recoverable.
- Exempt activities. Certain supplies such as welfare services and some education are exempt. No VAT is charged on them, and VAT on the related costs generally can’t be reclaimed.
- Non-business activities. Income where nothing is given in return, mainly donations and most grants, sits outside the scope of VAT entirely. You can’t charge VAT on it and you can’t recover VAT on the costs behind it.
Most charities do a mix, which is where it gets fiddly. When a cost supports both recoverable and blocked activities, you apportion it and reclaim only the business share. It pays to code costs to the right bucket as you go rather than untangling it at year-end, and worth remembering that misclassifying an activity as exempt when it’s really taxable quietly blocks recovery you were entitled to.
Do you need to register for VAT?
You must register once your VAT-taxable turnover passes £90,000 in any rolling 12-month period. That figure is unchanged for 2026/27, and the deregistration threshold sits at £88,000.
The catch is what counts toward it.
Only taxable turnover goes in, which is your standard, reduced and zero-rated sales. Exempt income and out-of-scope donations and grants don’t count, so a charity with large donation income but modest trading can sit well under the line.
Zero-rated sales, though, do count, so selling donated goods can pull you over even where no VAT is actually charged. If the difference between your income lines feels blurry, our guide to turnover versus profit is a useful place to start.
You can also register voluntarily below the threshold. It’s often worth it where you incur a lot of VAT on costs and make enough taxable supplies to recover it, effectively turning registration into a way to cut costs rather than an admin burden. Once registered, you charge VAT on your taxable supplies and file a return every three months through Making Tax Digital compatible software.
The reliefs on what your charity buys
Here’s the part most people mean when they ask about claiming VAT back, and the good news is it doesn’t depend on being registered. Charities can buy certain things at a reduced or zero rate, whatever their registration status.
You’ll pay the reduced rate of 5% on fuel and power used for charitable non-business activities, residential accommodation such as a care home, or small-scale use. And a range of purchases can be zero-rated, including advertising aimed at the public, aids for disabled people, and qualifying construction of buildings for charitable use. HMRC keeps a more expansive list in its guidance on VAT for charities.
The mechanism catches people out. You don’t claim these reliefs back from HMRC. You give your supplier an eligibility declaration confirming you qualify, and they charge you the lower rate at the point of sale. So the saving happens up front, not on a return. Keep evidence of your charitable status and a copy of every declaration, because that’s what HMRC will want to see if it checks.
A small number of charities, such as hospices and search and rescue bodies, can also recover VAT on their non-business costs through special refund schemes. These are narrow, so it’s worth checking whether your charity falls inside one rather than assuming it doesn’t.
Two recent changes you should know about
There are two developments that are important to know about.
First, following the Yorkshire Agricultural Society case, HMRC has widened the VAT exemption on fundraising events. An event can now have more than one primary purpose, so a show that’s both fundraising and educational can still qualify, provided fundraising is genuinely one of the main aims and the event is promoted as such. Charities that overpaid on past events may be able to reclaim, so it’s worth a look back.
Second, from 1 April 2026, businesses no longer have to account for VAT when they donate goods to a charity for it to give away or sell. That removes a cost that used to discourage corporate donations, which is quietly good news if your charity relies on donated stock.
Getting your charity’s VAT position right
VAT for charities rewards getting the groundwork right. Classify your activities correctly, keep your declarations and evidence in order, and the reliefs and recovery you’re entitled to look after themselves. Get it wrong and it shows up as either money left on the table or an unwelcome assessment.
If you’d like help working out your charity’s VAT position, from whether to register to what you can reclaim, please get in touch. Whittock Consulting provides clear, practical accountancy support for organisations that want their numbers working properly. We’d love to hear from you.
