Charities and Tax

18th Nov 2011

A few of the basic tax advantages of charitable status ....

If your organisation is recognised as a charity for UK tax purposes, it may qualify for a number of tax exemptions. This doesn't mean that charities never pay tax. Your charity might receive taxable income or gains and if so tax will need to be paid. In addition, if your charity has business activities the VAT rules will apply to you just as they do for any other business.

 

Applying for recognition as a charity for tax purposes

In order for your charity to benefit from the tax reliefs available to charities, you must be recognised by H M Revenue & Customs (HMRC) as a charity for tax purposes.

Income Tax and Corporation Tax exemptions and reliefs for charities

Most of the income and gains received by charities are exempt from Income Tax and Corporation Tax provided that the money is used for charitable purposes only.

Donations received through the Gift Aid scheme, investment income, land and property income

Your charity can claim exemption from tax on these sources of income as long as the income is used for charitable purposes only.

Tax relief on trading profits

Any profits that your charity makes from trading activities - selling goods and services to customers - may be taxable. However, there are some exemptions, depending on the nature of your trading activities.

Capital Gains Tax relief for charities

Your charity is exempt from tax on capital gains providing the proceeds of the disposal are used for charitable purposes only.

Reduction in Inheritance Tax where there are charitable legacies

If you leave 10% or more of your estate to charity, then your Inheritance Tax Rate on the balance of your estate will be reduced from 40% to 36% from next April. This new rule is designed to encourage charitable giving in Wills.

Author: Emma Glover (emma.glover@rowlandsaccountants.co.uk)

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