Charities and corporation tax

What are charity corporation tax exemptions?

Charities do not enjoy a blanket exemption from tax. Certain specific types of income are exempted from corporation tax subject to the condition that income is applied to charitable purposes, principally:

  • Investment income
  • Capital Gains
  • Income from land
  • Income from fund-raising events
  • Trading which satisfies the primary purpose of the charity
  • Trading carried out by the beneficiaries of the charity
  • Non-primary purpose trading income which is under £50,000 and under 25% of the Charity’s total income; trading income under £5,000 is exempt in any case

In addition, some charity income and activities (eg philanthropic activities paid for by donations) are simply not taxable.

How can a charity come within the charge to corporation tax?

There are several ways in which a charity can end up having to pay tax. The most common ones we come across are:

  • Non-primary purpose trading exceeds the limits described above;
  • The charity makes non-charitable expenditure, which can include lending to a non-charitable organisation such as a trading subsidiary;
  • The charity breaches the substantial donor rules.

How Slade & Cooper can help with charity corporation tax

If we prepare your accounts and do your audit or independent examination then as part of that work we will review whether or not there is any likelihood that the charity will come within the charge to corporation tax, and we will advise you accordingly.

Slade & Cooper can also prepare and file the corporation tax return CT600, including the charity supplementary pages CT600E. This is only required if HMRC have requested it or requested it or if the charity has a tax liability to declare.

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