Does my charity need to register for VAT?

In the UK the VAT registration threshold is currently £90,000 but you should check HMRC’s website for any updates. For charities, the job of measuring their taxable income is a little tricker than for many other businesses. This is because many charities receive income which is exempt or outside the scope of VAT, and this does not count towards taxable turnover.

What is taxable turnover?

Taxable turnover includes standard rated, zero rated and lower rated supplies. It does not include the value of exempt supplies, or non-business grants or donations. Charities do not need to register if they mainly make zero-rated supplies, but they do still need to notify HMRC if their taxable sales exceed the VAT registration threshold.

When does a charity have to register for VAT?

Where a charity is not registered for VAT, every month they should calculate the value of taxable sales for the past 12 months. If the taxable sales exceed the VAT registration threshold, the charity must inform HMRC by the end of the month after that in which it reached the threshold. For example, if a charity exceeds the threshold in March, it must notify HMRC by 30 April and registration will apply from 1 May.

There is also a second test which is forward looking and would trigger registration is a charity expects to make taxable supplies exceeding the registration threshold in the next 30 days alone. For example, if on 1 March, a charity realises that it is going to receive a payment of £100,000 of taxable income before the end of the month, it must notify HMRC by 30 March and it will be registered from 1 March.

What happens after registration?

Once registered, the charity will need to charge VAT at the appropriate rate on its sales income and pay this VAT to HMRC. It may also need to declare VAT on services purchased from overseas.

The charity may also be able to reclaim VAT incurred on its expenditure [insert link on this site ‘Can my charity reclaim any VAT from HMRC?’]. However, if the charity also has income which is exempt or outside the scope of VAT this may restrict the amount of VAT which can be reclaimed on expenditure.

Can a charity register for VAT voluntarily?

A charity can choose to register voluntarily for VAT if it is ‘in business’ and makes or intends to make taxable sales even if the value of such sales is below the registration threshold.

Having done this, the charity would then have exactly the same responsibilities as a charity that is obliged to register. An example of when voluntarily registration might be beneficial is where a charity sells zero-rated items and buys standard-rated goods or services, because it would then – potentially – receive a VAT refund from HMRC.

Any financial advantages of voluntary registration would need to be weighed against the administrative costs of submitting VAT returns and complying with the legislation.

What if the charity identifies that it should have been registered for VAT at an earlier date?

Charities should notify HMRC if they identify that they should have been registered for VAT at an earlier date. There is no time limit on a late VAT registration. For example, if a charity identifies that it should have been registered for VAT 10 years ago, then HMRC will apply the registration from that date, even if the charity fell below the registration threshold at a later date. As well as paying over the VAT on taxable sales to HMRC, interest and penalties may also be payable in the event of late registration, as they can if VAT returns are submitted late.

However, it is not possible to back date a voluntary registration.

HMRC guidance

HMRC guidance on education can be found in VAT Notice 700/1 Who should register for VAT.

HMRC guidance for their own staff can be found in their VAT Registration Manual.