Charities and tax

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Charities and tax

Overview

As a charity you can get certain tax reliefs. To benefit you must be recognised by HM Revenue and Customs (HMRC).

Charities don’t pay tax on most types of income as long as they use the money for charitable purposes.

You can claim back tax that’s been deducted, eg on bank interest and donations (this is known as Gift Aid).

When you need to pay tax

Your charity may need to pay tax if you’ve:

  • received income that doesn’t qualify for tax relief
  • spent any of your income on non-charitable purposes

You need to complete a tax return if your charity has tax to pay.

Community amateur sports clubs (CASCs) get different tax reliefs.

Tax reliefs for charities

As a charity you don’t pay tax on most of your income and gains if you use it for charitable purposes - this is known as ‘charitable expenditure’.

This includes tax:

  • on donations
  • on profits from trading
  • on rental or investment income, eg bank interest
  • on profits when you sell or ‘dispose of’ an asset, like property or shares
  • when you buy property

To get tax relief you must be recognised by HM Revenue and Customs (HMRC).

Community amateur sports clubs (CASCs) get different tax reliefs.

When you do pay tax

Charities pay tax on:

  • dividends from UK companies
  • profits from developing land or property
  • purchases - but there are special VAT rules for charities

Charities pay business rates on non-domestic buildings, but they get an 80% discount.

You must pay tax on any money you don’t use for charitable purposes. This is known as ‘non-charitable expenditure’.

Pay tax

You must complete a tax return if your charity needs to pay tax or if HMRC asks you to.

Reclaim tax

You can claim back tax that’s been deducted, eg on:

  • donations (this is known as Gift Aid)
  • bank interest

Get recognition for tax purposes

To get tax relief your charity must be:

Apply for recognition

Register your charity’s details using HMRC’s online service.

Reclaim tax

If you receive income with tax deducted, eg donations you can claim Gift Aid on, you can claim it back:

Bank interest

You can arrange to receive interest without tax deducted. Show your bank your letter of recognition from HM Revenue and Customs (HMRC).

If tax has already been taken from your interest you can claim it back for:

  • the current tax year by asking your bank
  • previous tax years by claiming it from HMRC

Pay tax

If your charity has income that doesn’t qualify for tax relief you must complete a tax return.

If you have no tax to pay, complete a tax return only if HM Revenue and Customs (HMRC) asks you to.

If your charity’s income is over £10,000 you must submit an annual return to the Charity Commission.

Company Tax Returns

Complete a Company Tax Return if your charity is a limited company or unincorporated association. Include the supplementary pages for charities and community amateur sports clubs (CASCs).

A charity is a limited company if it was set up by a:

Limited companies must also send annual accounts to Companies House.

Trusts

Complete a Trust and Estate Self Assessment tax return if your charity is a trust. A charity is a trust if it was set up by a trust deed or will.

Penalties and deadlines

You must complete a tax return when HMRC asks you to, even if no tax is due.

You may have to pay a penalty if your tax return is late or you don’t complete one when you should.

The deadline depends on whether you complete a Company Tax Return or a Self Assessment tax return.

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