Tax and charitable or non-charitable expenditure
If your organisation has charitable status in the UK, you’ll qualify
for a number of tax exemptions and reliefs on income and gains.
Your charity can only claim these specific tax exemptions and reliefs,
if it uses or spends the money it receives for charitable purposes -
aims that are for the public benefit that your charity was set up for.
Money your charity spends when carrying out activities in support of
such aims is called 'charitable expenditure'.
If your charity uses any of the money it receives for a purpose that
isn't charitable, for example political activity, this is called 'non-charitable
expenditure'. It may mean that your charity won't get tax relief on
all its income - and may have to pay some tax.
On this page:
What is charitable expenditure?
Charity law says that all charities must have charitable purposes,
or objectives, that are for the public benefit. These are set out in
a charity's governing document. For example, a charity's purpose might
be the advancement of education for the public benefit.
Income that your charity uses specifically for its charitable purposes
is called ‘charitable expenditure’.
Charitable expenditure might include things like:
- charitable grants that your charity makes
- the cost of running and managing your charity
Tax and charitable expenditure
Charities in the UK are exempt from tax on most income and gains,
as long as they use the money for charitable purposes only. This applies
- Gift Aid donations.
- Payroll Giving donations.
- Rental income.
- Interest and other investment income.
- Capital gains.
- Profits from your charity's charitable trading. Charitable
trading can be either ‘primary purpose’ or a trade mainly carried
out by the beneficiaries of the charity. Primary purpose trading
is trading activity that's carried out as part of your charitable
purposes or aims, for example a theatre charity could sell tickets
for a theatrical production they put on. An example of a trade
carried on mainly by beneficiaries might involve the sale of
products made by workshops for disabled people.
Find out how to reclaim tax on Gift
Aid and other income
Find out more about tax exemptions
on charity trading profits
What is non-charitable expenditure?
Any income or gains that your charity spends on non-charitable purposes
is called 'non-charitable expenditure'.
Non-charitable expenditure includes:
- Expenditure on things that aren't for the charitable purposes set
out in your charity's governing document.
- Payments to an overseas body if you can’t satisfy HMRC that
your charity has taken reasonable steps to ensure the money will
be applied for your charity’s charitable purposes. Your charity
is responsible for ensuring that its charitable objects are met
by the overseas body otherwise the expenditure may be treated
- Any investments and loans that your charity makes that aren't
'charitable' investments or loans. For example, bank or building
society deposits are charitable investments and loans to another
charity for charitable purposes only, are charitable loans. For
more information see link at end of this section.
- The cost to your charity of certain transactions that are not
wholly charitable - where someone makes a donation or donations
but as part of an arrangement also gets something of value from
the charity in return either directly or indirectly. For example,
a person might have donated a large amount to your charity but
in return you sell them a property at less than market value.
about charitable investments and loans in the detailed guidance notes
about payments to overseas bodies in the detailed guidance notes
about transactions with substantial donors in the detailed guidance
Tax liability as a result of non-charitable expenditure
If your charity spends any of its money for non-charitable purposes
(non-charitable expenditure), it may lose its tax exemption and have
to pay tax on all or part of its income or gains. The amount that
is taxable is usually the same as the amount of the non-charitable
In a 'chargeable period' a charity receives:
- gross Gift Aid income of £28,000
- gross bank interest of £3,000
It's normally entitled to tax relief on its total income - £31,000.
A chargeable period is:
- the tax year ending 5 April for a charitable trust
- the accounting period for a charity that's treated as a company
for tax purposes
The charity spends £10,000 in charitable grants and administration.
It makes a non-charitable loan of £7,000 and invests the balance in
a bank savings account.
Because the loan is non-charitable expenditure, the charity loses tax
relief on the same amount as the loan. So the income on which the charity
gets tax relief goes down to £24,000 (£31,000 minus £7,000) and the
charity has to pay tax on £7,000.
Read more about non-charitable
expenditure in the detailed guidance notes
How HMRC monitors charitable expenditure
If your charity does spend any of its income and gains on non-charitable
purposes you'll need to send a completed tax return to HMRC to show
the amount of any non-charitable expenditure. The charity will need
to calculate and pay the tax that’s due.
- Which tax return you’ll need to complete depends on whether your
charity is set up as a trust or company for tax purposes.
- Most charities are treated as companies and complete a Company
Tax Return along with the supplementary page CT600E.
- Charities are treated as trusts if they were set up by a trust
deed or a will and complete a Self Assessment tax return, together
with the supplementary page SA907.
HMRC sends some charities a tax return every year, but most get one
only occasionally. If you think your charity may have to pay tax - because
of non-charitable expenditure or for any other reason - you should complete
a tax return and the appropriate supplementary pages and send them to
If your charity doesn't declare correctly, and on time, that there's
tax to pay, it may have to pay interest and a penalty.
Find out more about tax returns for charities and Community Amateur Sports Clubs
Tax return deadlines
If HMRC sends your charity a tax return, you must complete it and
send it back on time. Your charity will have to pay a penalty if you:
- don't complete the tax return
- send it back late
All tax returns have notes with them that give details about penalties
for sending a tax return in late.
Contacting the HMRC Charities Helpline
For more help you can contact the Charities Helpline.
the Charities Helpline
More useful links
Charities and tax: the basics
Trading and business activities: the basics