Taxation for Charities
As traditional sources of income have come under pressure, even smaller charities now routinely set out to earn revenue through retail and charging for services. But they could be exposing their funds to corporation tax, or even jeopardising their charitable status. One of the more effective solutions is to create a trading subsidiary to conduct the taxable revenue, which then passes on all the profits to the sponsoring charity. If implemented correctly, tax liabilities are avoided and the charitable status will not be lost.
The VAT rules for charities are particularly complicated and difficult to administer. Under the ‘partial exemption’ regulations, charities may be able to recover a portion of the tax they incur on their running costs. Many charities are aware of the opportunities that partial exemption provides, but are uncertain if it applies to them or if it would be cost effective to reclaim.
Every charity, even those not registered for VAT and which do not pay corporation tax, should examine their tax affairs at regular intervals. We are always glad to provide an initial review, without cost, in order to determine whether a more intensive analysis would be beneficial to the charity.