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Charities and tax - useful information

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It’s important to be aware of financial obligations that draw upon hard-earned income – but there are also benefits to be had. As a charity you can get certain tax reliefs but you must be registered with HM Revenue and Customs (HMRC) and your charity must be:

  • based in the UK, EU, Iceland, Liechtenstein or Norway
  • registered with the Charity Commission or another regulator
  • run by ‘fit and proper persons’
  • established for charitable purposes only – meaning you don’t have to pay tax on most of your income and gains if it’s ‘charitable expenditure’

This includes tax on

  • donations
  • profits from trading
  • rental or investment income, such as bank interest
  • profits when selling or disposing of an asset, e.g. property or shares
  • when buying property

Charities do have to pay tax on dividends from UK companies, profits from developing land or property. You have to pay tax on any money not used for charitable purposes – defined as ‘non-charitable expenditure’. And if your charity’s income is over £10,000 per annum you must submit an Annual Return to the Charity Commission.

Comprehensive guidance can be found by clicking here.

VAT

What qualifies for VAT relief?

Charities have to pay VAT on all standard-rated goods and services they buy from VAT-registered businesses. You pay VAT at a reduced rate of 5% on fuel and power - if used for residential accommodation, non-business use and general small-scale use.

Click here for detailed clarification on what does and doesn’t qualify.

Zero rate VAT

There’s a wide range of goods and services which are VAT zero-rated for charities – everything from medical equipment to construction services. HMRC provides comprehensive information of exactly what charities need to know about VAT obligations, available by clicking here

Again, guidance is available from HMRC is available by clicking here.

Business rates

Charities and amateur community sports clubs can apply for charitable rate relief of up to 80% if a property is used for charitable purposes. Check with your local council to see if you’re eligible. Additional ‘discretionary relief’ up to 100% is sometimes offered.

 ‘The government needs to adopt a more strategic approach when it comes to investing in the charity sector and recognise that supporting our social sector is one of the best ways of achieving  social change.’ - Charity Finance Group briefing on March 2016 budget