Churches, as charities, are liable to pay VAT but do have a few special VAT arrangements. The most important of these are listed below and further information can be found on HMRC’s website.
Churches may apply to pay just 5% VAT on fuel (gas and electricity) used during charitable activities. You may have to speak to your provider to arrange this and should regularly check your bills to ensure you are being given this rate.
There is an important exception to this: if less than 60% of the fuel you use is for charitable purposes then you will pay 20% on the VAT that is not related to the charitable usage. For example, if you have a nursery in your church hall then any fuel used by the nursery will have a rate of 20%.
There are two special circumstances that affect tax:
1. Repairs to a Listed Place of Worship
If you are carrying out repairs to a listed place of worship you may be able to reclaim the VAT spent during the building project from the Listed Places of Worship Grant Scheme which is an NGO run by the Department of Culture, Media and Sport. You should contact them before agreeing the building work to ensure that you are eligible and confirm the process for making a claim.
2. New Builds Tax Implications
A new building, built by the church for entirely charitable usage may be exempt from VAT on the building works however there are a number of rules governing this (e.g. this does not apply if you intend to rent out any part of the building). You must seek independent tax advice* before undertaking a new build.
Specific Products that are Exempt from VAT
A number of products are exempt from all VAT. Of particular interest to churches are products designed to aid disabled people, including hearing loops.
A full list of exempt items can be found on the HMRC website.
Registering for VAT
Only parishes which have a VAT taxable trading income of over £85,000 per year need to register with HMRC for a VAT number. If you think this may apply to your parish you should seek independent tax advice.* Information on VAT registration can be found here.
*ACAT (Association of Church Accountants and Treasurers) can source qualified VAT advisers for parishes. You can contact them here.