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VAT recovery for charities

From the description of the liability of supplies and activities of charities in V6.184 it can be seen that charities may have a mixture of taxable, exempt and/or non-business activities. As VAT can only normally be recovered on costs attributable to taxable supplies charities can hence have a complex VAT recovery position as they need to work to attribute costs incurred to the supplies made.

Non-business expenditure and VAT recovery

VAT cannot normally be recovered on expenditure which is used for a charity's non-business activities (only VAT incurred for business purposes can be 'input tax'). However, the question of whether expenditure is used for business purposes will not always be straight forward. For consideration of a business purpose in the context of input tax recovery, see V3.405A–V3.410. Some expenditure may be used for both business and non-business purposes and it will be necessary to apportion between the two. Principles of apportionment are described at V3.408.

For many charities, an income based method of apportionment (that is determining