Value Added Tax (VAT) is a sales tax charged by businesses on the goods and services they supply, except very small businesses whose turnover is below the VAT threshold and those businesses whose activities are regarded in law as exempt from VAT or outside of its scope. More information on these categories follows later in this article.
For charities and voluntary organisations, VAT is a particularly complex tax and you may need to get further advice from an expert if you think it will affect you. This overview outlines VAT as it generally applies to voluntary and community organisations.
It is widely assumed that voluntary and community organisations are exempt from paying VAT, but they normally pay VAT when they purchase goods and services, just as ordinary individuals do.
Voluntary organisations are often not registered for VAT because they are not undertaking business activities. If they are not registered for VAT, then they may not charge VAT, nor may they recover VAT. Activities such as collecting donations or undertaking grant-funded work will always be non-business activities and therefore outside the scope of VAT. On the other hand, organisations frequently undertake activities which do fall within the scope of VAT. However, some business activities are exempt from VAT and some may be zero-rated, so VAT will not be chargeable on all business income.
To register for VAT, you must complete a form and obtain a VAT registration number which must then be quoted on all sales invoices. A business must register for VAT when its VAT-able turnover exceeds the VAT threshold. The current threshold can be checked on the HM Revenue & Customs (“HMRC”) website. HMRC is the government department that looks after all taxation issues, but there are specialist VAT offices. You may have to deal with a different VAT office for registration to the one you deal with for specific queries once you are registered.
You have to check if income from taxable business activities exceeds the threshold on a “rolling” twelve-month period, not just the organisation’s financial year or the tax year.
