August 12, 2022


VAT is a tax on business transactions. If a body provides goods or services without making any charges (e.g., because the body is wholly funded by grants or donations) it will not normally be entitled to register for VAT, or to reclaim VAT on related costs.

Where, say, a firm of accountants or solicitors provides free seminars to potential clients; posts useful information on its website; or doesn’t charge new clients for the first meeting; it does normally so as part of its business plan. There is no separate non-business activity.

For VAT purposes, an activity can be “business” even if provided by a charity and even if the activity is unprofitable. But HMRC have more difficulty in seeing that a charity might sometimes provide a service without charge for good “business” reasons, rather than solely to meet its charitable/philanthropic objectives.

This was the case in The Towards Zero Foundation(“TZF”.) TZF’s primary objective is to achieve zero road traffic fatalities principally through the operation of New Car Assessment Programmes (“NCAP tests”.)

TZF sets up car safety testing programmes around the world. On setting up a programme in a new jurisdiction, it will purchase new cars anonymously, test them, and then publish the results.

Ideally, any adverse publicity causes manufacturers to improve their models, and then pay TZF to retest.

HMRC unsuccessfully argued that the free tests constituted a separate, non-business activity, and that TZF should restrict VAT on its expenditure.

On the facts, the Tribunal found for TZF that the whole testing activity was a single activity, the free tests led to income from paid tests, and no restriction of input tax was necessary.


Whether an activity undertaken by a charity is by way of business for VAT purposes can be very important. It can determine whether VAT is chargeable on any income (is it a grant or a fee?) whether VAT can be recovered on costs; and whether the charity can buy certain goods or services without paying 20% VAT on top (e.g. fuel and power; or construction services.)


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