HMRC UK Charity Tax Relief, Including Charitable Donations And VAT

How to claim HMRC UK charity tax relief, including charitable donations, limited company donations, corporation tax and VAT

UK Charity Tax Relief, Including Charitable Donations & VAT

How to claim HMRC UK charity tax relief, including charitable donations, limited company donations, corporation tax and exempt and zero rated VAT.  We fail to claim £600m pa tax relief on charitable donations for Gift Aid alone and that’s just one of many HMRC charity tax reliefs. Not just charitable donations, but limited company donations, corporation tax deductions, exempt and zero rated VAT, business rate relief and more, which you can claim up to 4 years retrospectively.  At the end are HMRC charity tax relief FAQs, including charitable donations, VAT and trading.

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Charity Tax Relief On Charitable Donations - Gift Aid

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.

Other UK Tax Relief On Charitable Donations

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.

Are Charitable Donations Tax-deductible for UK Companies?

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 and VAT - Claim Exempt and Zero Rated

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.

Charity Business Rate Tax Relief

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.

Social Enterprises - HMRC Tax Relief & Exemptions

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.

Tax Relief For Staff Costs - Employment Allowance

Your charity can claim up to £4000 in employment allowance, if you pay Class 1 National Insurance (most full time staff).

UK Charity Tax Relief Check - Free, Quick & Very Simple

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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How To Claim Charity Tax Relief - HMRC Registration Guide

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.

HMRC Charity Tax Relief FAQs

  • Do UK charities have to pay tax? 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.
  • When do charities have to pay tax?  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,
  • Do community interest companies (CICs) pay tax? 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.
  • Do charities get business rates relief? 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’.
  • Do charities have to submit tax returns? A charity must complete a tax return if it has income that does not qualify for tax relief or if HMRC asks for one.
  • What is form ChV1? ChV1 is used to tell HMRC about changes to authorised officials, responsible persons and nominees and bank account and other minor details.

Tax Relief on UK Charitable Donations

  • Can I claim tax relief on UK charitable donations?  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.
  • Can a company get tax relief on charitable donations?  Companies can claim tax relief by deducting the value of donations from total business profits before tax.
  • What charitable donations can a company get tax relief on?  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.

Charity VAT - FAQs

  • Do charities pay VAT? 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.
  • What VAT exemptions do charities get? 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.
  • Do charities have to register for VAT? 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.
  • Are there VAT reliefs for charity fundraising events?  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.
  • Do charity events qualify for VAT relief?  Fundraising events may qualify for VAT relief but social events which incidentally make a profit and activities of a semiregular or continuous nature, such as the frequent operation of a shop or bar, don’t fall within the VAT exemption.
  • Do charities pay VAT on advertising?  The supply of advertising to a charity is zero-rated. The zero rating covers advertisements on any subject, including staff recruitment.
  • Can charities claim VAT relief on goods connected with collecting donations?  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.
  • Do charities get VAT exemption for disability aids? 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.
  • Is charity building work 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.
  • Do charities pay VAT on fuel and power?  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.
  • Can you claim VAT on charity donations?  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.

Charity Tax and Trading FAQs

  • Can charities make a profit? Charities may generate income by carrying on trading activities which contribute directly to the furtherance of their charitable objects, or (where the purpose is to raise funds for the charity) which do not involve significant risk.
  • What can a charity trade? Your charity can trade goods and services, but there are rules on what types of activities count as trading and these depend on a number of factors, including the number, nature and frequency of goods or services being sold, the charity’s intention and presence or absence of a profit motive.
  • Is charity trading taxable? A charity will not pay tax on profits it makes from trading that is part of your charity’s primary purpose or which helps your charity’s primary purpose.  You may have to pay tax on the profits from trading that has nothing to do with your primary purpose but not if your turnover from this type of trading is below the small trading tax exemption limit.

HMRC Charity Tax Guidance

More On UK Charity Tax Relief & Exemptions

For a whole range of guidance on charity tax reliefs and exemptions, visit the Charity Tax Group.

Charity Tax Relief - Not Professional Guidance

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.

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