In most instances, charities are exempt from paying taxes and are eligible for tax reliefs, such as when any income is used in pursuit of charitable purposes (which aim to tackle issues to benefit the wider community).
However, this is not always the case. Charities need to be mindful of the circumstances in which they are liable to pay tax, in order to avoid falling foul of the law.
When is tax due?
According to the Government, charities are still to pay tax on the following:
- Dividends from UK companies before 6 April 2016
- Profits from developing land or property
- Purchases that are subject to VAT (but tax reliefs may be applicable)
- Received income that does not qualify for tax relief
- Any income spent on non-charitable purposes
Charities are also responsible for paying business rates on commercial premises such as shops and offices. Despite this, they are able to benefit from an 80 per cent discount which can have a dramatic impact on the overall tax bill.
Whilst not every charity is required to complete a tax return to HM Revenue & Customs (HMRC), if the charity is classified as a limited company or unincorporated association, it is necessary to file a Company Tax Return.
Another consideration for charities that have an income amounting to more than £10,000, is that they must submit a charity’s annual return (comprising of the charity’s total income and expenditure).
Which tax reliefs can charities benefit from?
As mentioned, when income is used for charitable purposes, it is eligible for tax reliefs.
The tax reliefs would normally be applied to income such as profits from trading, profits from selling assets, donations, and rental or investment income.
If tax has been paid on any donations, it may be possible to reclaim this.
Need advice on ensuring your charity complies with tax regulations? Contact our experts today.