For charities the VAT regime poses an administrative nightmare - more complex than for any other sector. Charities have to pay VAT just like anyone else, yet there are some VAT reliefs available.

Certain goods and services can be purchased, by charities, at the zero rate or a reduced rate of VAT. Charities face a mix of fully taxable business supplies, exempt business supplies and non-business supplies.

VAT is underpinned by the premise that the cost of a service or product is ultimately borne by the final consumer. However, as charities rarely charge for the goods and services they provide, charities operate outside of this underlying premise.

Consequently there is no mechanism to secure reimbursement for any VAT paid. This is often referred to as irrecoverable VAT.


VAT on alterations to listed buildings: removal of zero rate

Budget 2012 announced that the VAT zero rate for alterations to listed buildings would be removed, with alterations instead charged at the standard rate. We anticipate that the cost to charities with heritage assets is likely to be significant - for further information read our joint consultation response with NCVO.

Despite the best efforts of the sector and heritage organisations, the measure was passed as part of the Finance Bill, which received Royal Assent in July 2012.

While it is disappointing that government did not step down on the issue or exempt charities from the VAT charge, a number of significant concessions were made:

  • Churches and other listed places of worship will now receive all of the VAT back on alterations and repairs thanks to an additional £30m for the Listed Places of Worship (LPW) grant scheme. The fund has also been ringfenced.
  • The transitional period has been extended, from March 2013 to September 2015.
  • Projects where listed building consent (or similar) had been applied for before budget day (21 March 2012) will now be able to continue to benefit from the zero rate.

If you have any questions or concerns about the measure, please email

VAT cost sharing exemption 

The VAT cost sharing exemption was introduced into law as part of the Finance Act 2012. The exemption will allow qualifying organisations to share certain eligible services without the VAT charge. For those thinking of making use of the exemption, HMRC has produced detailed guidance explaining how the exemption can be enacted.


HMRC guidance on the cost sharing exemption
Revenue & Customs brief 23/12 announcing the measure


The long-awaited introduction of the measure follows years of lobbying by the sector. In summer 2011 CFG submitted a consultation response jointly with NCVO, and both organisations met with David Gauke MP, the Exchequer Secretary, and Nick Hurd MP, Minister for Civil Society, to discuss charities' concerns with the previously proposed model for implementation. A follow up meeting was also held with representatives from HMRC and CFG, NCVO and the Charity Tax Group to discuss alternative models.

CFG & NCVO consultation response

HMRC - Summary of consultation responses
Briefing - CFG, CTG & NCVO and HMRC meeting

CFG, CTG & NCVO joint letter to David Gauke MP




706 - Partial exemption rules

33/10 - Purchase or construction of buildings used for 90% charitable purposes

25/10 - Pay-per-click charity advertising on sponsored links and other associated services



Accounts of a range of previous VAT cases can be seen here.


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