As a tax barrister, people frequently ask me about VAT and charities. So, charity and tax fans please take note of this, from HMRC, the deceptively simple starting point for the complex issue of VAT and charities.
A freely given donation for which nothing is given in return is non-business income and is outside the scope of VAT.
You [the charity] might receive grant funding to support your activities. If this funding is freely given, with nothing supplied in return, it is outside the scope of VAT.
However, if the terms and conditions attached to the grant are such that the funding is given in return for goods or services supplied by the charity, then this may count as a taxable business activity and VAT may be payable on the funding income.
For more information on deciding whether grant funding counts as taxable income, read the section on HMRC’s website, on ‘Grant Funding’ in 701/1 Charities.
If you cannot agree with HMRC, feel free to contact me.
Tax Barrister, Accountant