Eligibility for Reduced VAT
The reduced 5% VAT rate applies to energy consumed for non-business purposes by the charity. This encompasses activities directly linked to charitable work, such as operating a homeless shelter, providing care for the elderly, or conducting educational programs.
If a charity engages in commercial activities, such as running a charity shop selling donated goods, the reduced rate is applicable only to the portion of energy utilised for non-business purposes. For mixed-use buildings, a more intricate calculation method is required.
To access the reduced VAT rate, charities must register with their energy supplier and furnish them with their charity registration number. Maintaining accurate records of energy usage is essential to demonstrate the proportion allocated for non-business purposes, particularly for charities with mixed-use operations.
Which Expenses Qualify for Relief from VAT?
Charities are subject to VAT rules that differ slightly from those applicable to other organizations. While they must pay VAT on standard rate goods and services, charities may qualify for VAT reductions, entitling them to pay a reduced rate of VAT (5%) or even the ‘zero rate’ on certain goods and services. Notably, this can include energy used for specific business activities.
As a charity, you can anticipate paying only 5% VAT on power and fuel if they are intended for any of the following purposes: