Limited companies and unincorporated organisations are liable for Corporation Tax on their profits. This includes all charities, with the exception of charitable trusts, which are liable to Income Tax. However, there are a number of tax exemptions available to charities which mean that they usually do not pay Corporation Tax.
This page will help you decide whether your charity is liable to pay Corporation Tax and what you need to do if it is.
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Profits for a company, including a charitable company, are made up of all income and gains that the company receives. However, charities are exempt from Corporation Tax on a number of sources of income and gains including:
provided the income and/or gains are applied to charitable purposes only.
You claim the exemption by completing your Company Tax Return.
Charitable trading includes:
In addition a tax exemption is available on:
You will only be required to complete a tax return if either:
If your charity receives income or has a capital gain that's not exempt from tax, you must tell HMRC. You must also tell HMRC when you use income or gains for any non-charitable purposes.
If your charity's income or gains are not wholly exempt from tax, your charity will be liable for Corporation Tax. If your charity is liable for Corporation Tax, you must tell HMRC, pay any Corporation Tax due and file a Company Tax Return on time. For example, you may need to file a return if your charity carries on a non-charitable trade as well as carrying out charitable activities.
Trading or business activities of charities - including those carried out by a related or subsidiary limited company - may be subject to Corporation Tax deadlines and requirements. But there are some exemptions.
Charities can set up subsidiary companies to carry out trading that would otherwise give rise to a Corporation Tax liability if carried out by the charity.
In some circumstances the tax and VAT treatment of your charity's activities will be different.