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How To Get Tax Exempt Status For Your Non-Profit Organisation

As a new UK non-profit organisation, you may have found yourself wondering whether or not you’re required to pay tax.

The assumption that charities don’t have to pay any tax at all is not true.

While you are usually exempt from paying tax on most of your income and gains (if used for charitable purposes), there are some situations where you may be liable. This includes if your organisation has:

  • Received income that does not qualify for tax relief
  • Spent income on non-charitable purposes.

In this article, we share everything you need to know about non-profit accounting, including what tax exempt status is, and the types of activities that qualify.

At Hartley Fowler, we’re pleased to provide our clients with outstanding accounting services for non-profit organisations. From Statutory Reporting Accounting to Taxation Advice, we can assist you in navigating complex charity laws, ensuring compliance and effective financial management. To find out more, please get in touch with our team today.

What is Tax-Exempt Status?

Tax-exempt status is granted to certain establishments, such as charities and other non-profit organisations, relieving them from certain tax obligations on their income or transactions.

Granted by HMRC based on a specific set of criteria, tax-exempt status may vary depending on the type of organisation and its activities. Additionally, donations made to organisations with tax-exempt status may be eligible for tax relief or other benefits, encouraging generous support for charitable causes.

In order to gain tax-exempt status, your charity must be recognised by HM Revenue and Customs (HMRC). This can easily be done by completing an online form.

Tax Exemptions for Charities: What Qualifies?

  • Corporation Tax
    In essence, charities are exempt from paying corporation tax under most circumstances. They are typically not required to submit a corporation tax return unless either of the following situations applies:
  • The charity earns taxable incomes or gains that are not covered by reliefs or exemptions.
  • HM Revenue & Customs (HMRC) specifically requests a corporation tax return.
  • Capital Gains Tax
    Charities are exempt from capital gains tax on the sale of assets that would typically fall under this tax, as long as the proceeds are used for charitable purposes.
  • Property Taxes
    Properties used for charitable activities can benefit from an automatic 80% reduction in business rates. In addition, the local authority can offer an additional 20% reduction. Some charities may also qualify for exemption from Stamp Duty Land Tax when purchasing property or land.

What About VAT?

There are some circumstances where charities may qualify for VAT relief, however, they must verify their charitable status to the supplier and provide a written declaration. Upon registration with the Charity Commission, charities receive a unique registration number – this serves as proof of their status.

Certain purchases are zero-rated for VAT, which includes but is not limited to:

  • Goods designed for disabled individuals
  • Veterinary equipment
  • Medical equipment and medications
  • Adapted motor vehicles for disabled individuals
  • Advertisements promoting donation collections.

What Are Charitable Purposes?

According to the Charities Act 2011, charitable purposes encompass activities that serve the public and advance an organisation’s objectives. These may include initiatives related to education, health, human rights and animal welfare.

Operational expenses, such as rent and employee wages, are also considered within the realm of charitable objectives. However, any non-charitable income or activity that is not directly linked to the charity’s development or fundraising may be subject to taxation. This is unless it falls under the small trade exemption limit.

  • Small Trade Exemption Limit

This is the maximum amount of money a charity can spend on non-charitable purposes before they are taxed. An organisation’s limit may vary from £5,000 to £50,000, depending on its overall annual income.

Want to Find Out More About How to Register For Tax Exempt Status? Get in Touch With Our Charity Accountants

At Hartley Fowler, we’re passionate about supporting charities, offering professional, appropriate advice. As well as advising your organisation on its taxable status, we can also provide a range of statutory reporting accounting services and assistance with account preparation.

To find out more about our unparalleled services, please get in touch with one of our specialist charity accountants. Call us today to organise a free initial consultation:

Wimbledon office: 020 8946 1212
Brighton office: 01273 202311