Tax treatment of the charity

By Tolley in association with Speechly Bircham LLP
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Speechly Bircham LLP provides comprehensive and up to date tax information covering:

  • Tax treatment of the charity
  • Introduction to the tax treatment of a charity
  • Taxation of income
  • Taxation of capital gains
  • Anti-avoidance provisions
  • VAT
  • Stamp taxes
  • Trading income
  • Corporate charities
  • Taxation of employees of charities
  • Taxation of beneficiaries of charities
  • Business rates relief
  • Community Amateur Sports Club

Introduction to the tax treatment of a charity

Charities are not exempt from taxation, but they do benefit from a number of specific tax reliefs.

A charity does not need to be registered with the Charity Commission to qualify for tax relief. For example, if the charity is excepted, exempt or is too small to be registered, the charity will not lose its tax relief.

Strictly, a charity loses tax relief if it becomes subject to a requirement to register as a charity but registration does not occur (see FA 2010, Sch 6, Part 1, para 3). However, in practice a short delay in registering as a charity, once a requirement to register has arisen, is unlikely to prejudice the availability of tax reliefs.

Before a charity can take advantage of these tax reliefs and make tax repayment claims, it needs to be formally recognised by HMRC for tax purposes. If the organisation has already been registered as a charity by the Charity Commission, this will usually be accepted as sufficient evidence for HMRC to consider it to be a charity for tax purposes.

The application is made on form ChA1  for recognition as a charity for tax.

Taxation of income

Most of the income and gains received by charities are exempt from income tax and corporation tax provided that the assets representing such income / gains are used for charitable purposes only. For details of the main types of exemption and relief, see the Charities and tax  page on the HMRC website.

There are some forms of income that do not qualify for tax relief. Two examples are:

  • trading income outside the exemptions (see below)
  • profits from developing land

For example, if

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