Charity tax and business rates reliefs

Corporation tax exemptions on non-trading income and HMRC recognition

Non-trading income exempt from corporation or income tax, and the HMRC recognition gateway that unlocks charity tax reliefs.

Charities do not pay tax on most non-trading income and gains, provided the money is used for charitable purposes. To access any charity tax relief, an organisation must be recognised as a charity by HMRC for tax purposes, separate from and in addition to registration with a charity regulator such as the Charity Commission, OSCR or CCNI.

Exempt from corporation or income tax: Donations, profits from trading that meet the primary-purpose, small-trading or subsidiary rules, rental or investment income such as bank interest, and profits on disposal of an asset such as property or shares
Taxable: Profits from developing land or property, and dividends received from UK companies before 6 April 2016
Non-charitable expenditure: Money not used for charitable purposes is taxable, and the charity must complete a tax return if it has tax to pay or HMRC requests one
HMRC recognition eligibility conditions: Based in the UK, established for charitable purposes only, registered with the Charity Commission or another regulator if that applies, run by fit and proper persons, and recognised by HMRC
Registration route: HMRC's online service, using a Government Gateway sign-in; form ChV1 is used after recognition to notify HMRC of changes to a charity's registered details
Benefits unlocked by recognition: Corporation or income tax exemption on qualifying income, reclaiming tax deducted at source such as bank interest, Gift Aid, and VAT reliefs on purchases
Tax return obligations: A limited company or unincorporated association completes a Company Tax Return with charity or CASC supplementary pages; a trust set up by trust deed or will completes a Trust and Estate Self Assessment return
Annual return cross-reference: Where charity income exceeds £10,000, a separate annual return to the Charity Commission is also required, distinct from the HMRC tax return

VAT position

Charities are not generally exempt from VAT. You pay VAT on standard-rated purchases like any other organisation, and you must register for VAT once your taxable turnover exceeds the same threshold that applies to any business. You get a defined set of reduced and zero-rate reliefs on specific categories of purchase.

Charity VAT position and reliefs on purchases

Charities are not generally exempt from VAT, but qualify for reduced and zero rates on defined categories of purchase.

Charities are not generally exempt from VAT. They pay VAT on standard-rated purchases like any other organisation and must register for VAT once their taxable turnover exceeds the same threshold that applies to any business, though they may register voluntarily below that threshold to reclaim input VAT. Charities get a defined set of reduced and zero-rate reliefs on specific categories of purchase.

Exempt supplies: A charity cannot charge VAT on exempt supplies such as welfare services, and generally cannot reclaim VAT on the costs of an exempt activity; a charity cannot register for VAT if all its activities are exempt
Outside the scope of VAT: Donations with nothing given in return, grant funding for charitable activities with nothing given in return, and activities where no charge is made are outside the scope of VAT
Reduced rate (5%) - fuel and power: Applies to residential accommodation, charitable non-business activities, and small-scale use up to 1,000 kWh electricity per month or 2,300 litres of gas oil delivery
Mixed-use fuel and power rule: If less than 60% of the fuel or power qualifies, only the qualifying part gets the reduced rate and the rest is standard-rated
Zero rate (0%) categories: Advertising and goods connected with collecting donations, aids for disabled people, qualifying construction services, drugs and chemicals used in medical or veterinary research, equipment for producing talking books and newspapers, lifeboats and associated equipment, medicine or medicine ingredients, resuscitation training models, charity-funded medical veterinary and scientific equipment, ambulances, motor vehicles adapted for a disability, and rescue equipment
Import relief: Charities do not pay VAT on goods imported from outside the UK that provide basic necessities, equipment or office materials to run the organisation, or goods for use or sale at charity events, benefiting people in need
Evidence required to claim purchase reliefs: A Charity Commission registration number, or an HMRC letter of recognition; Scottish and Northern Irish charities must use the HMRC letter of recognition, not a regulator number
VAT registration not required to claim purchase reliefs: A charity does not need to be VAT-registered to claim these reliefs, but must give the supplier a separate written eligibility declaration

Fundraising events and donated goods

Profits from one-off fundraising events and from selling donated goods, such as through a charity shop, get separate VAT and direct tax treatment from your ordinary trading.

VAT and direct tax treatment of charity fundraising events and donated goods

Conditions for the one-off fundraising event VAT exemption, the 15-event limit, and zero-rating on sales of donated goods.

Profits from lotteries or one-off fundraising events, such as jumble sales or barn dances, are exempt from direct tax provided all profits go to the charity's primary purpose, the event qualifies for the VAT fundraising-events exemption, and any lottery run has a Gambling Commission operating licence. Lottery ticket sales are exempt from VAT.

Fundraising event VAT exemption: Covers admission fees plus other income generated at the event, such as sale of commemorative items or food, for events organised primarily to raise funds for the charity
15-event limit: Restricted to 15 events of the same kind at any one location by the charity or qualifying body in a financial year; the 16th such event at that location in that year does not qualify
Excluded from the exemption: Normal or ongoing trading activities, income generated after the event such as sale of surplus commemorative items, and certain charity challenge events bundled with travel or accommodation
Donated goods sold at a qualifying event: Zero-rated, for example goods sold by auction at the event
Bought-in goods sold at a qualifying event: VAT-exempt; the charity may lose input VAT recovery on those goods as a result
Sponsored events: A charity organising and promoting its own sponsored walk, run or swim may use the fundraising exemption; commercially organised events generally do not qualify
Admission by suggested donation: A suggested entry donation not conditional on payment is treated as a donation, outside the scope of VAT; if payment is a condition of admission, standard-rated VAT applies
Own-supplies donated goods (charity shops): Sale of goods donated to the charity or its trading subsidiary is zero-rated, provided the goods are made available to the general public or to two or more people who are disabled or receiving certain means-tested benefits
Subsidiary condition for donated-goods zero-rating: Extends to a charity's trading subsidiary only where that subsidiary distributes its profits to the parent charity
Zero-rating lost if: The sale, hire or export follows a prior arrangement between donor, charity and buyer made before the goods were made available to the public, or the goods are used for any purpose after donation before being offered for sale, hire or export

Business rates relief

Charities pay business rates on non-domestic property, but qualify for relief where the property is used mainly for charitable purposes. The structure of the relief differs between Great Britain and Northern Ireland.

In England and Wales, your charity gets 80% mandatory rate relief on a qualifying property. Your local council can top this up with a further discretionary relief, up to 100% in total. Relief is not automatic: you must apply to your local council and provide evidence of your charitable status. You must also tell your council about changes such as the property becoming empty, its use changing, or the property being extended, to avoid a backdated bill. Charitable rate relief cannot be claimed alongside small business rate relief on the same property; your council decides which relief applies.

Related guidance

Charity trading rules and when you need a trading subsidiary (opens in a new tab)
Primary purpose trading, the small trading exemption and trading subsidiaries
Claim Gift Aid on donations (opens in a new tab)
How to claim Gift Aid on eligible donations
Prepare charity accounts using SORP (opens in a new tab)
How to prepare and file your charity's annual accounts

Official guidance on GOV.UK

Charities and tax (opens in a new tab) gov.uk
VAT for charities (opens in a new tab) gov.uk
How VAT affects charities (VAT Notice 701/1) (opens in a new tab) hmrc-manual
Charitable rate relief (opens in a new tab) gov.uk
Removal of eligibility of private schools for business rates charitable relief (opens in a new tab) gov.uk
Corporation Tax Act 2010 (opens in a new tab) legislation
Value Added Tax Act 1994 (opens in a new tab) legislation
Local Government Finance Act 1988 (opens in a new tab) legislation
Rates (Northern Ireland) Order 1977 (opens in a new tab) legislation

Charity tax and business rates reliefs

How taxes work for limited companies

Understanding business rates

Business rates relief schemes

Charity trading rules and when you need a trading subsidiary

Business name rules

VAT position

Fundraising events and donated goods

Business rates relief

Related guidance

Official guidance on GOV.UK

Related guides in Business Structure

VAT position

Fundraising events and donated goods

Business rates relief

Related guidance

Official guidance on GOV.UK