As a non-profit organization you may be wondering if you are required to pay Corporation Tax. Well, the long and short of it is no. Non-profit organizations are exempt from corporation tax, however, there may be some instances where you are required to pay taxes. HMRC has guidance and conditions that must be met for a non-profit or charity to be able to obtain tax-exempt status. You need to write to HMRC and get recognition in order to to do this.
To get tax relief your charity must be:
- based in the UK, EU, Iceland, Liechtenstein or Norway
- established for charitable purposes only
- registered with the Charity Commission or another regulator, if this applies to you run by ‘fit and proper persons’
- recognized by HM Revenue and Customs (HMRC)
An advantage of non-profit organisations registered in the UK is that they benefit from some reliefs and exemptions. Charities and non-profits are exempt from Corporation Tax as well as the trustees being exempt from Income Tax.
To take advantage of these benefits you must be recognised by HM Revenue and Customs. This is a simple process that we can manage for you here at Outsourced.
If some of the income from your non-profit organisation is used on things that are not related to the charity (known as ‘non-charitable expenditure’) or if some of the income received doesn’t qualify for tax relief, then you may be required to pay taxes.
As a non-profit organisation what can I get tax relief on?
As mentioned above non-profit organisations do not pay taxes on most income and gains if it is used for the purpose of the organisation (i.e. charitable purposes). This is known as ‘charitable expenditure’. This includes any taxes on things such as:
- Profits from trading
- Rental or investment income, e.g. bank interest
- Profits when you sell or ‘dispose of’ an asset, like property or shares
- When you buy property
Does this mean that I can assume that a non-profit organisation is exempt from all taxes?
No. Most organisations that are tax-exempt do remain subject to a wide variety of other taxes, including:
- Payroll (Social Security)
- Profits from developing Land or Property
- Dividends received from UK companies before 6th April 2016
- Purchases, but take note of the special VAT rules for charities
It is important to note that If you have set up a charity as limited company or unincorporated association then you will also need to complete a Company Tax Return. If it’s a trust, then the Trust and Estate Self-Assessment tax return is right for you.
Here at Outsourced our Accountants are qualified and able to assist you with your Financial Accounts and Taxation Status. If you have already set up an unincorporated/incorporated charity or a charity as a limited company or are considering doing so and would like some assistance then please do not hesitate to contact us on 02082496000 for a free consultation.
Written by Tricia Carr