Donations and charity-shop sales: VAT for non-profits
How donations, sales of donated goods and the payments basis work for a VAT-registered South African association not for gain, and how to book them.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
A hospice runs a charity shop. Members of the public drop off clothes, books and furniture; volunteers price them and sell them. The hospice also receives cash donations, a monthly grant from a corporate sponsor, and fees for a training course it runs for carers. It is registered for VAT, and its new bookkeeper has charged 15% on everything.
VAT for a non-profit is not the same as VAT for a trading business. SARS's guide for associations not for gain sets out special treatment for donations and for sales of donated goods, and a different accounting basis is available. This article walks through those rules and how to reflect them in the client's books.
A note on sources first. SARS's VAT 414 guide is based on the legislation as at January 2016, and its registration thresholds predate the changes from 1 April 2026. Use it for the principles below, and take current thresholds from SARS's current pages.
First, is it an association not for gain?
SARS's VAT 414 guide says an association not for gain must be formally established with a written constitution. Otherwise it is treated as an ordinary business, without the VAT benefits for associations not for gain.
A group that has operated for years on a handshake and a bank account is therefore not in a position to use any of what follows. If the constitution is missing, out of date or was never formally adopted, fix that before relying on the special rules.
Donations: no output tax
The guide says an association not for gain does not account for output tax on money, goods or services received as a donation, and the donor may not deduct input tax on the donation.
So the cash donations and the clothes dropped off at the charity shop are not supplies by the hospice on which it charges VAT. The corporate sponsor's monthly payment needs a closer look: if it is a true donation, the same applies; if the sponsor receives something in return, such as advertising or naming rights, the arrangement may contain a supply. Read the sponsorship agreement before deciding.
Selling donated goods: the 80% rule
The guide says the sale of donated goods or services by an association not for gain is exempt from VAT if donated goods and services make up at least 80% of the value of the supply.
For the charity shop, a second-hand jacket donated and sold as it is falls easily within the rule. Mixed items need more care. If volunteers repair a donated bicycle using bought-in parts, the question is whether donated goods still make up at least 80% of the value of what is sold.
Exempt is not the same as zero-rated. A zero-rated supply is taxable at 0%, while an exempt supply sits outside VAT. The VAT return reports them in different places, and the distinction affects how much input tax can be claimed on related costs.
The payments basis
The VAT 414 guide says an association not for gain may be registered on the payments basis of accounting for VAT. SARS's VAT 404 guide for vendors lists associations not for gain among those for whom the payments, or cash, basis is available, and notes that a vendor must apply to SARS in writing before using it.
On the payments basis, output tax and input tax are accounted for when money is received or paid, rather than when invoices are issued. For an organisation whose cash flow depends on when grants and donations arrive, that can match the way its finances actually work. The choice should still be made deliberately, with the written application on file.
Booking it in the client's books
If the association's books are on Achekam and your firm is appointed to them, you work directly in its own ledger, with no copy made, so whatever the firm posts appears in the association's own accounting screens.
Two features of those books matter for a non-profit:
- Invoices. A South African business sets each invoice line's VAT to 15% or 0%, and the invoice screen does not tell zero-rated and exempt apart. An exempt sale of donated goods and a zero-rated sale would both show as 0% on the invoice.
- The till. For a charity shop selling through Achekam's till, each till line is taxed at its product's own VAT rate, so a 0% product stays at 0%; otherwise the line takes South Africa's approved standard rate. The business sets whether shelf prices include VAT.
Because the invoice screen has no exempt label, keep exempt sales apart in another way. A workable approach:
- Set donated-goods products in the till at 0%.
- Post their sales to a separate income account named for exempt donated-goods sales.
- Post zero-rated sales, if there are any, to a different income account.
- Post donations received to a donations account, with no VAT.
- When preparing the VAT return, take exempt and zero-rated totals from their own accounts.
Charity shops also handle cash, which brings its own controls; donation box cash deals with counting and banking it.
When the client is a welfare organisation
Some non-profits are approved public benefit organisations that may register as welfare organisations, with their own input tax rules. If your client is one of these, read VAT for PBOs registered as welfare organisations as well.
The guide behind these rules
SARS's VAT 414 guide for associations not for gain and welfare organisations explains how the VAT Act applies to such bodies, including donations and which supplies are taxable or exempt. Read it with the client's constitution and a list of its income streams, and classify each stream before the next VAT period closes.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
