Is your charity paying too much tax?

Navigating the intricate web of UK taxation can be a daunting task for many charity trustees. But understanding tax benefits can lead to significant savings, allowing charities to channel more funds towards their causes. In what ways can your charity maximise its financial potential?

Charitable Status: The Key to Tax Benefits

If your organisation has been granted charitable status by the Charity Commission or another relevant body, it becomes eligible for a range of tax benefits. This status is paramount; without it, many benefits remain out of reach.

Gift Aid: Boost Your Donations

Gift Aid is a scheme that allows charities to reclaim the basic rate tax already paid on donations by UK taxpayers. Effectively, for every £1 donated, a charity can claim an additional 25p from HMRC at no extra cost to the donor.

To fully leverage this, charities should:

• Encourage all eligible donors to complete a Gift Aid declaration.
• Keep accurate records of all donations and declarations.
• File regular Gift Aid claims with HMRC.

Business Rate Relief

Charities are entitled to an 80% mandatory rate relief on charity-owned properties used wholly or mainly for charitable purposes. Local councils may also offer a discretionary relief for the remaining 20%. To benefit:

• Ensure your property’s use aligns with the criteria.
• Proactively apply for both mandatory and discretionary reliefs with your local council.

VAT Reliefs, Exemptions, and Zero Rating

While charities are not universally exempt from VAT, there are specific reliefs and zero rates applicable to certain goods and services. Examples include:

• Purchasing advertising or promotional items.
• Acquiring equipment for medical or veterinary uses.
• Buying or constructing new buildings for charitable use.

To harness these reliefs, it’s crucial to maintain a detailed understanding of what qualifies and to provide relevant evidence when making purchases.

Charitable Trading and Tax

Trading to raise funds might lead to a taxable profit. However, charities can take advantage of the ‘small trading tax exemption’. This means if your trading activities (unrelated to your charity’s purpose) generate income below a certain threshold, you won’t owe tax on the profits.

Investments and Capital Gains Tax

Charities are generally exempt from capital gains tax. When assets increase in value and are then sold, the profit (or ‘gain’) can usually be kept in full by the charity. However, trustees must ensure assets are used for charitable purposes to retain this benefit.

Careful tax planning for charities, can lead to meaningful financial gains. As trustees, understanding these nuances not only aids in compliance but can also unlock funds that propel your charitable mission further.

Next steps

For tailored advice and a comprehensive tax assessment, don’t hesitate to reach out to our team at UHY Ross Brooke. Together, we can ensure your charity is making the most of its financial opportunities.

As an accountant who specialises in charities and not -for-profit organisations, we are well placed to help you with audits, advice and day-to-day accountancy needs.