Charity expenses in the UK: the complete VAT guide for charities

For a UK charity, the hard expense question is VAT, and it is harder than for a business. A charity’s work is often non-business, paid for by donations and grants that sit outside the scope of VAT, so the VAT on purchases for that work can’t be reclaimed. Only purchases for business activities, like a shop, paid events or contracted services, carry recoverable VAT, and shared overheads are split. In exchange, charities can buy some things at 0% or the reduced rate, with the right declaration. This guide walks through the whole ledger with a verdict before the detail. Every figure is sourced to HMRC and GOV.UK in the Sources section, retrieved 10 October 2026.

What this guide covers: business and non-business activities, reclaiming VAT and apportionment, zero-rated and reduced-rate purchases, donations, grants and sponsorship, fundraising events, VAT registration, business rates relief, and staff costs.

The charity’s ledger at a glance

The rest of this guide walks through each row, and every section opens with its verdict.

Where ExpenseFlow fits

A charity’s purchase ledger is program costs, venue and catering for events, printing and advertising for appeals, shop stock, and grant-funded project costs that need tracking for funders. ExpenseFlow captures each document (email forward, upload or phone), reads the line items and VAT, codes each line with a written reason, and routes anything uncertain to a person before it posts. Its nonprofit check comes from the rules on this page: a line or account that reads as grant-funded, fundraising, appeal, donor-funded, bursary, outreach or beneficiary support is flagged, because input VAT on non-business or exempt activity is generally not recoverable and most charities apportion overheads at period end, so the line can’t be assumed fully recoverable. After approval the bill syncs to Xero with the source document attached, or to QuickBooks Online as a coded bill.

What it does not do: it never computes the recovery percentage or the partial exemption calculation, never issues eligibility declarations and never decides whether an activity is business or non-business.

The ExpenseFlow for charities and nonprofits page covers these checks across all five countries.

Business, non-business and reclaiming VAT

A charity can’t reclaim VAT on purchases that directly relate to its non-business activities, and general costs such as phone and electricity must be split between business and non-business use using an agreed method ^[1] . VAT-registered charities generally can’t reclaim input tax that relates to exempt activities either, unless it falls below the de minimis limit set out in VAT Notice 706 ^[1] . In practice a charity’s VAT accounts carry three buckets: directly business (reclaim), directly non-business or exempt (don’t), and residual overheads (apportion).

Zero-rated and reduced-rate purchases

Zero-rating for charities covers advertising, collecting boxes and low-cost lapel stickers or badges ^[1] , certain medical and scientific equipment ^[1] , medicinal products ^[1] and resuscitation training models ^[1] . The charity gives the supplier an eligibility declaration for each relief, and the supplier takes reasonable steps to check any conditions the charity can’t verify itself ^[1] . You don’t need to be VAT-registered to claim these reliefs ^[2] . Fuel and power supplied for a qualifying use, including charitable non-business activities, is charged at the reduced rate, and small quantities such as electricity up to 1,000 kWh a month qualify automatically ^[1] . Because non-business VAT can’t be reclaimed, these reliefs are often the only VAT saving on program costs, so check every advertising and energy invoice for the right rate.

Donations, grants and sponsorship

A donation is outside the scope of VAT if it is freely given, with nothing supplied in return ^[1] . Grant funding is treated the same way when the funder receives nothing in return, but conditions attached to it can turn the funding into payment for a supply ^[1] . Where a charity must give a sponsor a significant benefit, the sponsorship is a business activity taxable at the standard rate; naming a donor in a list of supporters or giving a flag or sticker is insignificant ^[1] . The VAT category of the income decides the recovery on the costs: a project paid for by an outside-the-scope grant is non-business, so the VAT on its purchases stays a cost.

Fundraising events

Events organised primarily to raise money for the charity are exempt if they are advertised as fundraising events, and the exemption is restricted to 15 events of the same kind in a financial year at any one location ^[1] . Because the income is exempt, VAT on the venue, catering and entertainment relates to an exempt activity and is generally not recoverable, unless the charity is under the partial exemption de minimis limit ^[1] . The VAT and MTD guide covers the return.

VAT registration and business rates

A charity must register for VAT when its VAT taxable turnover, the total value of non-exempt sales, exceeds £90,000, and can register voluntarily below that, for example to reclaim VAT on purchases for its business activities ^[2] . Charities pay up to 80% less business rates on property mainly used for charitable purposes, and the council can top this up with discretionary relief ^[3] .

Staff costs and records

For 2026 to 2027, employer Class 1 National Insurance is 15% above £96 a week ^[4] . Charities, including community amateur sports clubs, can claim the Employment Allowance ^[5] , worth up to £10,500 a year ^[6] . Workplace pension contributions are at least 8% in total, with at least 3% from the employer ^[7] . The record-keeping guide and year-end checklist cover the rest.

Common mistakes

• Reclaiming VAT on purchases for free services to beneficiaries ^[1] .
• Reclaiming all overhead VAT instead of apportioning it ^[1] .
• Paying 20% on advertising because no eligibility declaration was given ^[1] .
• Treating sponsorship with a significant benefit as an outside-the-scope donation ^[1] .
• Reclaiming VAT on fundraising event costs when the ticket income is exempt ^[1] .
• Running a sixteenth event of the same kind at one location and keeping the exemption ^[1] .