UK charities are crucial in helping communities and tackling social issues. Yet, they face tax challenges that need careful handling to stay compliant and financially stable.
Understanding these issues is key for charities to make the most of their resources and keep doing their great work.
Tax exemptions and reliefs
UK charities enjoy various tax breaks that can ease their tax load. These include exemptions from Income Tax, Corporation Tax, and Capital Gains Tax on funds used for charity work. However, understanding these exemptions can be tricky. Charities must ensure their actions align with their goals and keep accurate records to claim tax relief.
VAT issues
VAT is a complex area for charities. They aren’t exempt from VAT but can get reliefs on some goods and services. For instance, charities can claim VAT relief on advertising, certain medical and scientific equipment, and items for charitable use. However, applying these reliefs correctly can be tough. Charities must also handle VAT registration and compliance, including submitting accurate VAT returns and maintaining proper records.
Non-charitable trading
Charities often trade to earn extra income, but non-charitable trading income may face Corporation Tax. Charities must separate charitable from non-charitable activities to avoid unexpected taxes. This means careful management and clear record-keeping to protect their tax-exempt status.
Employment taxes
Charities must follow PAYE rules, including Income Tax and National Insurance Contributions (NICs) for staff. This adds to their tax duties. Charities must calculate and pay these taxes correctly to HMRC and manage other employment taxes like the Apprenticeship Levy. Not complying can lead to penalties and hurt the charity’s reputation.
Business rates relief
Charities can get up to 100% relief on business rates for properties used for charity work, saving significant money. However, applying for and keeping this relief requires ongoing compliance with local rules. Charities must ensure their properties are used solely for charity purposes and meet local authority criteria.
Gift aid
Gift Aid lets charities reclaim tax on donations from UK taxpayers. For every £1 donated, charities can claim 25p more from HMRC. But to benefit, charities must have the right documentation and comply with HMRC rules, including valid Gift Aid declarations and accurate donation records. Not following these rules can lead to losing Gift Aid claims and facing penalties.
Cross-border transactions
Charities working across borders may face extra VAT issues, like different VAT rules and rates abroad. Managing these needs a good grasp of international VAT rules and careful planning. Charities must also consider tax effects when getting foreign donations or grants and meet any reporting needs.
How we can help
Given the tax complexities, accountants are vital in guiding charities through these challenges. Our specialist expertise in the charity sector means we are well placed to help. Here’s how;
- Tax knowledge: Our tax and VAT experts advise a wide variety of charities, community interest companies, academy schools and other not for profit organisations. They know the tax rules and help charities use exemptions and reliefs correctly, offering advice on VAT, trading, and employment taxes.
- Financial management: We can help create budgets, monitor cash flow, and find savings – crucial when you are trying to optimise your resources and stay financially stable.
- Compliance and reporting: Ensuring tax compliance and accurate reports boosts transparency and trust with your donors and funding sources. We help maintain records and submit tax returns, lowering penalty risks. We can ensure you are well prepared and stay compliant when tax legislation changes.
- Strategic planning: We can help you develop long-term financial strategies, such as diversifying income and managing investments, helping you build resilience and achieve goals.
- Risk management: We can help assess and manage financial risks, preparing you for unexpected challenges, preventing crises, and supporting sustainability.
By leveraging our expertise, we can help charities navigate the complex tax landscape, ensuring compliance and optimising financial health. This support aims to free you up to focus on your core mission and continue making a positive impact on society.
