Charities (particularly those engaged in international relief) may sometimes export goods from the UK, perhaps to a disaster area outside the EU. Although the supply of goods may be free of charge, a VAT relief is available to charities allowing the export to be zero-rated rather than to be treated as a non-business activity. Commercial sales of goods to be exported would be zero-rated under the normal export rules; but this additional relief for charities means that even if no consideration is received the zero rating can still apply. HMRC confirms this position in paragraph 5.8 of HMRC VAT Notice 701/1.
These provisions enable a charity to recover VAT on goods donated or purchased by the charity for export. Because such activities are zero-rated, charities are entitled to reclaim VAT incurred on the goods themselves and on any handling, transport, storage or associated overheads, subject to the normal rules.
Charities must be able to satisfy HMRC that the goods have been exported. They are required to keep records of exports and should be able to provide a clear and ready link between those records and the proof of export required. For example, the normal evidence of sea freight exports is a copy of the bill of lading or sea waybill or equivalent.
A charity not ordinarily registered for VAT may register in order to benefit from this VAT relief. This means that if the charity exports aid free of charge, it can choose to register for VAT and then reclaim any VAT charged on obtaining and exporting the goods.
Charities should ensure that their systems allow for any costs relating to the export of goods to be identified with the directly related VAT then treated as recoverable.
The effect of these supplies on the business/non-business and partial exemption position should also be considered. Since no consideration is received in respect of these supplies, charities operating income-based methods are unlikely to be able to benefit. However, those using an inputs-based special method may be able to increase recovery of VAT on overheads (depending on the specifics of the method agreed with HMRC).