It is a common misconception that charities enjoy a complete exemption from tax. In fact, the rules on charity taxation are complex, and it is important that charities and non-profit organisations understand the tax regulations that they may face as well as the tax exemptions that they are entitled to.

Charity Tax Issues to be Aware of

Charities may face exposure to various tax-related matters and should be prepared for:

  • Income tax or corporation tax on particular types of trading or investments
  • Restrictions on tax relief where charitable funds are misapplied
  • VAT, PAYE and National Insurance, in addition to other taxes

Rules on donor benefits and substantial donors can have a substantial impact on available charitable tax reliefs if not carefully managed.

Charity Tax Relief

Tax reliefs on gifts and legacies, tax reclaims under the Gift Aid scheme or in relation to some types of investment income, and ensuring tax efficiency in the sale of land, buildings, chattels or investments bequeathed under a will are all essential to ensuring that charities gain the maximum amount of tax relief available to them. While there is a helpful new inheritance tax relief where at least 10% of a deceased's estate is given to charity, there are considerable concerns about measures announced in the 2012 Budget which will restrict the availability of tax relief on larger charitable donations.

Turcan Connell's renowned Charities Legal Team and dedicated accounting and tax compliance teams work closely together to ensure that charities can maximise their reliefs and minimise their exposure to tax, through timeous reclaims, expert planning advice and structuring trading activities. We can offer tailored charity tax advice in these areas, and ensure that chargeable activities are ring fenced from non-chargeable charitable work.

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