VAT update for charities, not-for-profits and sustainability sector – key changes you need to know
VAT group membership expanded
Dormant and completely exempt entities can now join VAT groups. This may help simplify administration for organisations with multiple entities. However, HMRC is reviewing group structures closely, especially in sectors like care, to prevent avoidance. If only one member remains, the group is disbanded, and a new VAT registration is required.
Fundraising event exemption clarified
The VAT exemption for fundraising events applies not only to charities but also to other certain not-for-profit organisations. Key conditions:
- The event must be clearly promoted as a fundraising event.
- Limit of 15 similar events per location per year.
- Mixed-purpose events are allowed, but fundraising must be a primary aim.
Educational services – watch specialisation
Educational VAT exemption only applies to subjects ordinarily taught in schools or universities. Highly specialised training (e.g., niche sustainability certifications) may not qualify.
Gift vouchers – important distinction
- Single purpose vouchers (SPV) only redeemable against standard rated goods or services: VAT due at sale. If never redeemed the VAT cannot be reclaimed from HMRC.
- Multi-purpose vouchers (MPV) can be redeemed against standard or zero rated goods or services: VAT due when redeemed. MPVs are generally preferable for flexibility and cash flow. Also, if never redeemed, no VAT becomes due.
Goods given away – £50 rule If you reclaim input VAT on goods given away (e.g., promotional items), you must account for output VAT unless the item is worth £50 or less.
Capital goods scheme threshold rising
From April 2026, the threshold for the Capital Goods Scheme will increase to £600,000 (excluding VAT). Computers will be excluded from the scheme.
Interest & penalties
- Late payment interest is now Base Rate + 4%.
- Penalty points for VAT compliance can affect CIS gross status.
- HMRC can impose penalties even if they are not out of pocket.
Online tools & error corrections
- You can now email Error Correction Notices (ECNs) to HMRC.
- HMRC has 12 months to raise an assessment after an ECN.
- All errors (except those made with reasonable care) must be disclosed separately, even if adjusted on the next return.
Sustainability & EU VAT rules
- Virtual events: EU rules changed, UK rules did not. This could lead to VAT being payable in both the UK and EU.
- Use & enjoyment rules: For B2C services, VAT may be due in multiple jurisdictions depending on where services are consumed.
Client account interest
Interest earned on client accounts (e.g., by law firms or grant administrators) is an exempt supply and may impact partial exemption calculations.
Action points for charities & sustainability organisations
- Charities: Review fundraising event plans for compliance.
- Charities, limited by guarantee companies, sole traders: Check educational services for VAT exemption eligibility.
- Consider voucher strategy for gift campaigns.
- Monitor EU VAT rules for virtual events and cross-border services.
Book a free online meeting with us at any time to discuss your these VAT issues.