With all that has been happening over the last 6 months, many charities have had to pivot or adapt their activities in response to the impact of the Global Pandemic. For some this has involved looking at new ways to generate income, to operate or to collaborate with others.
Now is probably a good time to review your current activities and ensure that you have not run foul of UK tax legislation.
Over the next few weeks, we focus on areas where your income or operations may have changed and where this may have a tax implication for the charity.
A good place to start is the specific exemptions on the taxation of income that are available to charities as long as the relevant criteria are met:
- Primary purpose trading income – where a charity’s activities are solely in pursuance of their charitable activities, as set out in their trust deed or Memorandum & Articles of Association, this income is exempt from tax. The key here, is to ensure that any adaptation to activities is still in accordance with your charitable objects.
- Investment Income – charities can invest Endowed or surplus funds to generate income from which to meet charitable objects in future periods.
- Rental income – may fall under either of 2 exemptions above. If provision of accommodation for a disadvantaged group is part of charitable objects then primary purpose exemption stands, otherwise if properties are rented to generate income to meet charitable objects then investment income exemption stands.
- Small scale non-charitable trading – monies raised from activities which are not part of your charitable objects. This could be merchandise, with the charity’s logo, aids for disabled, upcycling activities, training etc. Where the total annual income, is less than £80,000 (effective from 1 April 2019) this income falls outside the scope to be taxed. The key consideration here, would be to ensure that where any new methods of generating income could fall within this category, the limit is not exceeded. Once it has been exceeded ALL trading income becomes chargeable to tax.
If you have any questions or need further information, please contact Geoffrey Cox, Deborah Austin, Brian Jukes or Lucy Hatton in our specialist Charity team.