VAT on purchases can only be recovered by businesses registered for VAT. For ordinary businesses and usually the trading subsidiaries of charities, this is straightforward and all input VAT is recovered. For charities and voluntary organisations, it is frequently not so simple, as they have income that falls into several different VAT categories. The recovery of VAT on purchases is restricted to the taxable business activities.

Special methods can be agreed with the VAT office to calculate the proportion of VAT on purchases to be recovered. The VAT office will consider any basis which will give a fair proportion and which can be checked by their officers.

Fuel and power are supplied at a reduced rate of VAT of 5% to domestic users and charities if they are using the fuel for non-business purposes. This also entitles the customer to relief from paying the Climate Change Levy.

There is quite a long list of items which can be supplied at zero-rate VAT when supplied to a charity, although most are for medical supplies and aids for disabled people. To obtain the zero-rating, the charity supplies a certificate to the supplier, stating that the purchase qualifies for zero-rating. Examples of some of the items which may qualify for zero-rating when purchased by a charity are:

• building work to give access to charity-run buildings for the disabled
• special adaptation of toilets and bathrooms for the disabled
• charity advertising (see below)
• specially adapted equipment for use by a disabled person
• ambulances
• lifeboats and rescue equipment
• minibuses for transporting disabled people when purchased by a charity which provides care for those people
• talking books for the blind
• medical equipment if purchased out of donated funds

The conditions for the zero-rating are quite specific and must be adhered to carefully. The onus is on the charity to only provide a certificate for zero-rating to a supplier when it is appropriate. The charity is potentially liable to make good the VAT in the event of error.

Charities can buy advertising in all media at zero rate VAT, including all preparation work, such as design and artwork. The zero-rating applies to all types of advertising by charities, including recruitment advertisements, attracting new members, pupils or students, advertising events, raising awareness or fundraising. All media are allowed, including badges, balloons, banners, carrier bags, cinema, TV and radio advertisements, clothing, flags, internet advertising (except for adverts on the charity’s own website), all types of printed matter including business cards, calendars, car parking tickets, diaries, greetings cards, lottery tickets, posters, stationery.

Zero-rating is not available in the following cases:

• Personally addressed letters and other targeted fundraising activities. Direct marketing and telesales cannot therefore be zero-rated. It may be possible for individual items of the promotional material used to be zero-rated. (see also direct mail)
• Advertising on the charity’s own website, not the creation of the charity’s own website, even if the website is being used to raise funds.
• Where the charity prepares its own advertisements in house.
• Where the supply is not directly to a charity, for example where the supply is to a trading subsidiary.
• Where the advertisement appears in a charity’s own magazine, notice board, calendar or other publication.