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A guide to HMRC charity tax relief, including for UK companies corporation tax, tax deductible charitable donations, cultural tax relief and VAT and business rate exemptions, with links to the detailed guidance. Register with Charity Excellence, to find lots more free help and support.
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We can claim charity tax relief on charitable donations by UK tax payers via Gift Aid for a variety of types of charitable donations; including small donations in tins/buckets, retail, text, volunteer expenses, and membership. Here's my Gift Aid guide. on what you need to know and an HMRC guide on how to complete you Gift Aid schedule.
Higher rate tax payers can also claim tax relief on a charitable donation when they fill in their Self Assessment tax return. Effectively, this reduces the cost to them of the charitable donations they make.
HMRC also allows charities to claim tax relief on charitable donations, for the following:
Whilst not an option for most, tax payers that donate ‘pre-eminent objects or collections’ to the nation, may claim charity tax relief at 30%. The donor can choose whether to take the relief against income tax or against capital gains tax or a mixture of both.
Charitable donations are tax deductible for UK companies. They can claim corporation tax relief on charitable donations. Additionally, companies can claim tax relief on charitable donations of stock and equipment, and may be able to zero rate the VAT as well, sponsorship payments and the employee costs of secondments to charities and volunteering for charities in work time, which may be treated as business expenses.
Charities do pay VAT but can claim VAT exemption in areas, such as advertising, disability aids, construction, talking books, drugs and chemicals, rescue equipment, medicinal products, resuscitation models, medical and scientific equipment and even lifeboats.
There are also VAT exemptions for fuel and power, including the Climate Change Levy, a refund scheme for museums and galleries offering free admission, and charitable organisations can import certain goods into the UK free of duty and VAT.
And make sure you've identified items that are VAT reduced or zero rated, or are exempt VAT, which includes fundraising events, or scope of VAT, such as donations.
While you're at it, check that the VAT scheme you’re using is the best one for you.
The mandatory 80% business rates charity tax relief is well known. Less well known is the additional 20% discretionary charity tax relief and the 100% discretionary relief for non-profits that aren't charities. There are also reliefs for retail, exempt (disabled people and religious use) and empty buildings, small business, rural, enterprise and hardship. Click here for the HMRC guidance.
Here are the guidelines on Corporation Tax relief and allowances and tax guidance for CICs. Individuals receive 30% SITR tax relief, when investing in an eligible organisation. There are also EIS, SEIS and R&D tax reliefs.
Your charity can claim up to £10,500 in employment allowance, if you pay Class 1 National Insurance (most full time staff).
UK charity tax reliefs and exemptions can take a lot of wading through to find all yours so, as you score questionnaires, the system automatically checks and audits the relevant ones for your charity. It takes less than half a day to complete all 8 questionnaires and, once you have, simply run Tax Reliefs in the query system for a report and all the relevant links to HMRC charity tax relief guidance to enable you to claim all the exemptions and benefits your charity is entitled to.
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If you haven’t yet registered your charity with HMRC to claim tax relief on charitable donations and VAT exemptions, here’s my guide on how to do so.
Arts Council England have produced a useful guide to cultural tax reliefs.
For a whole range of guidance on charity tax reliefs and exemptions, visit the Charity Tax Group.
The biggest charity tax relief I ever found was a £0.25 million VAT exemption but I'm not an accountant, let alone a charity tax specialist, so am not competent to offer professional advice. I have summarised and linked this guide to the HMRC charity tax reliefs and exemptions guidance to create an index of all the main ones I can find. It is a layman's guide to understanding HMRC tax reliefs and cannot be used in decision making. If you need professional tax advice you must seek it from a professional, because I cannot give you that.
Charities pay taxes such as VAT and income tax on staff salaries but do not pay tax on most types of income as long as they use the money for charitable purposes.
Your charity may need to pay tax if you’ve received income that does not qualify for tax relief or spent any of your income on non-charitable purposes,
CICs are taxed in the same way as normal companies, including being subject to corporation tax and VAT. They are not eligible to claim Gift Aid.
Charities are given a mandatory 80% off their business rates bill. The local council may top up the discount so that your charity doesn’t have to pay business rates. This is called ‘discretionary relief’.
A charity must complete a tax return if it has income that does not qualify for tax relief or if HMRC asks for one.
ChV1 is used to tell HMRC about changes to authorised officials, responsible persons and nominees and bank account and other minor details.
Donations by individuals to charity or to CASCs are tax free. The tax goes to you or the charity, depending on whether you donate through Gift Aid, payroll giving, land, property or shares or in your will. This also applies to sole traders and partnerships.
Companies can claim tax relief by deducting the value of donations from total business profits before tax.
A limited company pays less Corporation Tax when it gives the following to charity: money, equipment or trading stock, land, property or shares, employees on secondment and sponsorship payments.
Charities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses. They pay VAT at a reduced rate (5%) or the ‘zero rate’ on some goods and services.
Certain supplies by charities are exempt from VAT. This means that although they are business supplies, no VAT is charged and VAT is not recoverable. Exemptions include advertising, fuel and power, disability aids, construction, talking books, drugs and chemicals, rescue equipment, medicinal products, resuscitation models, medical and scientific equipment and even lifeboats.
As a charity, you must register for VAT with HMRC if your VAT taxable turnover is more than £85,000. You can choose to register if it's below this, for example to reclaim VAT on your supplies.
Fundraising events may be VAT exempt if they are clearly organised and promoted primarily to raise money for the benefit of the charity or qualifying body. People attending or participating in the event must be aware of its primary fundraising purpose.
The supply of advertising to a charity is zero-rated. The zero rating covers advertisements on any subject, including staff recruitment.
A charity can buy pre-printed collecting boxes, envelopes and appeal letters at the VAT zero rate. Low-cost lapel stickers, emblems and badges that a charity gives in acknowledgement of a donation can also be zero-rated.
Supplies to charities of certain goods and services which the charities make available to disabled people for their personal or domestic use are zero-rated.
The construction of buildings, and certain works to protected buildings, intended to be used solely for non-business purposes or as a village hall or similar can be zero-rated subject to certain criteria being met.
Charities pay VAT on fuel and power but can claim the reduced rate for a qualifying use. Either for use in a dwelling or certain other types of residential accommodation or charitable non-business activities, such as free day care for the disabled. Deliveries of certain small quantities of fuel and power are automatically treated as being for a qualifying use.
Financial or other support in the form of donations or gifts, as long as these are freely given and secure nothing in return, are outside the scope of VAT. A taxable supply is not created where you provide an insignificant benefit.
