Do we have to register for VAT?

England and Wales: This page sets out the position in full — VAT is reserved to the UK Parliament, so the rules are the same everywhere in the UK. Scotland: the same tax and the same rules, with no difference in principle — VAT is a reserved matter. Northern Ireland: the same position again, for the same reason — reserved, with no difference in principle.

What counts as business activity for VAT?

For charity VAT registration, the business/non-business split is the whole game, and it is where advice is genuinely needed. Most published guidance leads with the number, which gets the emphasis backwards. Once the split is done, the threshold itself is the smaller question. VAT is reserved, so HMRC applies the same rules to trustees in England and Wales, Scotland and Northern Ireland.

The page assumes you have assessed your corporation tax position on the same trading. The split below also works from a chart of accounts that separates income by type.

A business activity, for VAT, is a supply of goods or services for consideration, made for the purpose of getting income. HMRC applies that as a two-stage test:

1. The activity must result in a supply of goods or services for consideration, with a real legal relationship between supplier and recipient.
2. That supply must be made for the purpose of getting income.

A payment changing hands does not, by itself, make an activity a business. Even a charge set below cost does not, on its own, make something economic. Applying the test to your own activities is a judgement, not a lookup. HMRC’s own manual adds further exclusions from case law that a general source will not mention.

What counts towards the VAT threshold?

Only taxable business turnover counts towards the VAT threshold. Taxable turnover is the value of a charity’s taxable business supplies. Donations, legacies, non-business income, grants with nothing supplied in return, and exempt supplies are all excluded.

The most common mistake is counting total income against the threshold. It is the biggest number to hand, and the threshold is expressed in pounds. Charities register unnecessarily on this misunderstanding, taking on VAT accounting they never needed.

The second common mistake runs the other way: assuming a grant is outside the scope because it is called a grant. A grant that is genuinely consideration for a supply is business income, whatever it is called. HMRC applies its own three questions to work out which a grant is.

Conditions and monitoring requirements attached to a grant do not, on their own, turn it into a contract for a supply. Charities get this backwards in both directions. Some read conditions as proof of a contract when they are not. Others read the word “grant” as proof there is no contract when there might be.

You check those conditions when you read and negotiate the grant agreement.

And “not for profit” does not mean “not a business” for VAT. HMRC states expressly that an activity can be a business even where it serves community benefit and the charity’s own aims.

When does a charity have to register for VAT?

Registration has two separate routes, not one: a historic test that looks backwards, and a forward-look test that looks ahead. They carry two different notification duties, and merging them into one clock would be wrong. The table compares the two tests and their clocks.

Deregistration works the other way, at a lower figure: £88,000. This figure was corrected during independent verification of this page. The statute’s own amending instrument is unambiguous, quoted verbatim:

“in paragraph 4(1) and (2), for ‘£83,000’ substitute ‘£88,000′” — SI 2024/307, art. 2(2)(c).

The previous deregistration threshold was the lower of these two figures, not the higher registration figure some sources assume by analogy. The two thresholds have never moved together, and neither has increased since 1 April 2024 — a positive, checked finding, not an absence of evidence.

Can a charity register for VAT voluntarily?

Sometimes. A charity making no taxable supplies at all cannot register for VAT, even voluntarily. That covers a charity with no business activities, and one where everything it does is exempt.

Two carve-ins are easy to miss. A charity whose business activities are wholly outside the UK can register. And a charity whose supplies are wholly zero-rated can, and often should, register voluntarily. Zero-rated supplies are still taxable supplies, and they still count towards the threshold. Registering lets the charity recover the VAT it pays on its own costs.

What is still unsettled: legacies and gross income

Two points are worth stating plainly as unresolved, rather than guessed at.

First, no HMRC source states in terms that legacies sit outside taxable turnover. It follows soundly by reasoning. A legacy is freely given with nothing supplied in return — the same logic that puts an ordinary donation outside the scope of VAT. Treat that as reasoning, not as a directly quotable rule.

Second, and separately: “gross income” is used for other charity-law thresholds, such as registration, scrutiny and the annual return. None of the three UK charity regulators has published a position on whether it is measured gross or net of VAT.

This gap does not touch the VAT registration threshold. VAT registration is tested against taxable turnover, a figure that is inherently exclusive of VAT. The gap matters once a charity is VAT-registered and has to work out its other charity-law thresholds. No regulator has said which basis to use there. Do not assume an answer where none has been published.

Whether or not the charity registers, the next step is to identify and claim your VAT reliefs.

Common mistake: counting total income against the threshold

Only taxable business turnover counts. Donations, legacies, non-business income, grants with nothing supplied in return, and exempt supplies are all excluded — testing the wrong figure leads to registering unnecessarily.

Common mistake: assuming a grant is outside the scope because it is called a grant

A grant that is consideration for a supply is business income whatever it is labelled. Conditions and monitoring requirements do not, by themselves, turn a grant into a contract — charities get this backwards in both directions.

Common mistake: assuming “not for profit” means “not a business”

HMRC states expressly that an activity may be a business for VAT purposes even where it is carried out for community benefit. That holds even where it furthers the charity’s own aims.

Worked example

This example uses its own scenario: a charity with large grant income, a small shop and some room hire. None of the site’s three example organisations (Wrenfield, Tollgate, Saltmarsh) runs a shop or lets rooms.

Only the shop and the room hire count towards the threshold. The grants do not, provided nothing is supplied in return for them. A charity that adds up all its income, including the grants, will overstate its own position. It may believe it has to register well before it does.