Understanding Vat for Charities | AccountantsPlus

2 Feb 2026

It is easy to assume that charities do not deal with tax. Unfortunately, VAT does not work like that. For many charities, VAT is one of the most complex and least intuitive areas of regulation they face.

How VAT Applies to Charities

Since VAT was introduced, the legislation has included a range of specific reliefs for charities. However, there is no general VAT exemption simply because an organisation is a charity. In practice, most charities are subject to the normal VAT rules when they make business supplies. The challenge is that different income streams can be treated very differently for VAT purposes.

Primary purpose and non-primary purpose trading

Under charity law, charities are allowed to carry out trading that directly supports their charitable objectives. This is known as primary purpose trading. For example, admission charges for a charitable museum or gallery.

Charities may also carry out trading activities that are not part of their core charitable purpose, often as a way of raising funds. A common example is the sale of Christmas cards or merchandise.

Where this non-primary purpose trading becomes significant, charities are usually required to operate through a separate subsidiary trading company. While profits can normally be passed to the charity without corporation tax, these subsidiaries are not charities. As a result, many VAT reliefs available to charities do not apply to them.

In some circumstances, a charity and its trading subsidiary can register together as a VAT group, but this requires careful consideration and professional advice.

When Does a Charity Have to Register for VAT?

Charities must register for VAT if their taxable turnover exceeds the VAT registration threshold. For the 2025 to 2026 tax year, this threshold is £90,000 per annum.

Taxable turnover includes income that is subject to VAT at the standard rate, reduced rate, or zero rate. It does not include income from exempt supplies or non-business activities.

This distinction is critical and often misunderstood. Charities need to monitor taxable turnover on an ongoing basis, not just total income. Failure to register within 30 days of exceeding the threshold can result in penalties and backdated VAT liabilities.

Most charity leaders are not trained in tax or accounting. VAT is technical, rules-based, and unforgiving of assumptions. That is precisely why early advice matters. 

If you would like to explore how VAT applies to your charity’s activities, income streams, or trading arrangements, you are welcome to contact Accountants Plus for an initial discussion.

Disclaimer: This content is for general information only. It does not constitute professional advice, and no client relationship is created through its use.