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Choosing the Right VAT Code: UK Charities

Updated 31 October 2026

This article is for UK charities set up on the 2026 VAT codes.

Every transaction you enter needs a VAT code. The code tells Aedon how to treat the VAT on your VAT return. The right code first time means a correct return and the right amount of VAT reclaimed.

How to read a VAT code

Take TAX-PUR-20 as an example:

  • TAX is the VAT class. It tells Aedon whether you can reclaim the VAT.
  • PUR means a purchase. SAL means a sale, and JNL a journal.
  • 20 is the VAT rate. EX means exempt, and NA means no rate applies.

A few codes have a fourth part, such as RC for reverse charge.

How to read a 2026 VAT code: VAT class, type, rate and an optional extra part

The four VAT classes

VAT class What it means Can you reclaim the VAT?
TAX, Taxable Sales that carry VAT at 20%, 5% or 0%, and what you buy only to make them Yes, in full
EXE, Exempt Exempt income, such as fundraising events, education or care fees, and what you buy only for it No
RES, Residual Overheads that support more than one type of activity In part
OOS, Outside the Scope Donations, grants, wages, and the costs of free activities No

Your everyday codes

Code Use it for Examples
TAX-SAL-20 Sales at 20% Bought-in merchandise, sponsorship with advertising, paid training, trading subsidiary sales
TAX-SAL-05 Sales at 5% Rarely used by charities
TAX-SAL-00 Sales at 0% Sale of donated goods in a charity shop, sales of books
EXE-SAL-EX Exempt income One-off fundraising events, welfare services, education and training, room hire
EXE-SAL-EX-INT Interest you receive Interest on reserves and deposit accounts
OOS-SAL-NA Income that is not a sale Donations, legacies, Gift Aid, grants with nothing given in return
TAX-SAL-NA-ADJ Correcting sales VAT from an earlier return See Correcting VAT below
TAX-PUR-20 Purchases at 20% for your taxable activities Stock for the shop, card terminal rental
TAX-PUR-05 Purchases at 5% for your taxable activities Children’s car seats bought to sell in your shop
TAX-PUR-00 Purchases at 0% Food, books, charity advertising
TAX-PUR-EX Purchases with no VAT because they are exempt Bank charges, insurance, postage stamps, loan interest
TAX-PUR-NA-ADJ Correcting purchase VAT from an earlier return See Correcting VAT below
OOS-PUR-NA Payments that are not for goods or services Grants you pay to other organisations
OOS-JNL-NA Journals with no VAT Wages, PAYE, transfers between accounts

Commonly miscoded items

Item Use Do not use
Bank charges and account fees TAX-PUR-EX TAX-PUR-20 or OOS-JNL-NA
Card terminal rental TAX-PUR-20, where the invoice shows VAT TAX-PUR-EX
Card transaction fees TAX-PUR-EX, unless the invoice shows VAT TAX-PUR-20
Interest received on reserves EXE-SAL-EX-INT OOS-SAL-NA
Interest paid on loans and overdrafts TAX-PUR-EX OOS-JNL-NA
Donations OOS-SAL-NA EXE-SAL-EX
Gift Aid repayments from HMRC OOS-SAL-NA EXE-SAL-EX or TAX-SAL-00

Free activities and shared costs

These codes are switched on if your charity provides services free or below cost, or has exempt income as well as taxable sales.

Code Use it for Examples
OOS-PUR-20 Costs used only for free activities, with VAT at 20% Printing a free information leaflet, a free helpline’s phone bill
OOS-PUR-05 Costs used only for free activities, with VAT at 5% Fuel and power for a free drop-in centre
EXE-PUR-20 Costs used only for exempt income, with VAT at 20% Venue hire for a fundraising event
RES-PUR-20 Overheads shared across your activities, with VAT at 20% Head office rent, audit fee, finance system

You cannot reclaim VAT on costs for free activities. For shared overheads, Aedon works out how much you can reclaim at each VAT return. It uses your business percentage and recovery percentage, which your accountant agrees with you.

For example, your head office electricity carries £1,000 of VAT. With a 60% business percentage and a 70% recovery percentage, you reclaim £420.

Read Partial Exemption and Recovery Percentages: UK Charities for how the percentages work.

Other extra codes

Aedon switches these on when your account is set up, if they apply to you. If your charity’s work changes, please raise a case and our support team will switch the group on.

Group Switched on if you Example code Read more
Flat Rate Scheme Use the VAT Flat Rate Scheme, which is rare for charities TAX-SAL-20-FRS The VAT Flat Rate Scheme: UK Charities
International Buy services from overseas suppliers, such as software or online fundraising platforms, or sell abroad TAX-PUR-20-RC Reverse Charge VAT: UK Businesses
Construction Carry out building work for others under the construction reverse charge TAX-SAL-00-DRC Reverse Charge VAT: UK Businesses
Northern Ireland Move goods between Northern Ireland and the EU TAX-SAL-00-NIG

Correcting VAT from an earlier return

  • If a supplier sends a credit note, enter it with the same code as the original invoice.
  • To correct VAT from an earlier return, post a VAT adjustment journal. Use TAX-PUR-NA-ADJ for purchases or TAX-SAL-NA-ADJ for sales.
  • Enter the VAT amount. Enter a net amount only if your purchase or sales total also needs correcting.
  • Record the original VAT period and the reason.

For example, a June invoice had £200 of VAT left off your return. In September, post one journal on TAX-PUR-NA-ADJ for £200 of VAT and £0 net.

Aedon warns you if your corrections for a period pass the HMRC limit. Larger errors must be reported to HMRC separately, so speak to your accountant.

If you are not registered for VAT

You do not file VAT returns, and you use three codes:

Code Use it for
OOS-SAL-NA All income, including donations and Gift Aid
OOS-PUR-NA All purchases, entered at their full cost including any VAT
OOS-JNL-NA Wages, transfers and journals

Useful HMRC links

Need help?

If you are unsure which code to use, ask your accountant. A wrong code can mean reclaiming VAT you are not entitled to.

For help with Aedon.Accounting itself, please raise a case and our support team will help.

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