Tax issues concerning charities and non-for-profit organisations can be complex. Because charities are effectively recognised as a business, they are liable to pay taxes and are required to submit a Self Assessment Tax Return Form to HMRC. Failure to do so, or if you fill in the form incorrectly, you could be liable to pay at least a £10 fine. So where are the potential tax slopes for trustees of charitable organisations?
Tax liabilities of trustees
Charities need to appoint a trustee who will be responsible for the day-to-day management of the organisation, and thus responsible for tax liabilities. The tax implications change depending on the type of trust fund you have set up and the amount of income your charity receives.
Your revenue could have an impact on the amount of taxes you pay, but you are entitled to pay trustees a salary which will reduce the amount of tax payable. However, in order to apply for a salary to trustees you must obtain confirmation from a governing body, the charity commission or a court.
Tax breaks for charities
Just like any other business, non-profit organisations are entitled to tax exemptions. The most common is day to day expenditure such as utility bills, stationary and travel expenses etc, but there are other breaks you can benefit from providing certain conditions are met.
For example, if your annual turnover is £5,000 or less you will not have to pay taxes – but you still have to submit a Self Assessment Tax Return Form. If your revenue exceeds £5,000 you will be liable to pay 25 per cent of the total in taxes to HMRC.
You are also entitled to claim back the basic tax rate on donations received through the Gift Aid Scheme – as long as the income was used for charitable purposes. Donations you received from companies are also exempt from tax.
Tax relief on income
Charities are also entitled to tax relief on several different types of income. Investment tax for example is not subject to tax, nor is the property you use providing it is used only for charitable purposes.
When you may be liable to pay taxes is on trading profits, although again there are a number of exemptions depending on the type of trading activities your charity is participating in. The following are types of trading are exempt:
- Taxable trading
- Primary purpose trading
- Trading ancillary to primary purpose
- Beneficiary trading
- Mixed trading
- ‘Small’ trading
- Extra-statutory Concession C
- Charity shops
Tax liabilities for charities and non-profitable organizations is complicated and we advice anybody who is hoping to launch a charity or become a trustee of an existing charity to seek professional advice from a qualified Chartered Accountant. The experts at Taxaccolega have a wealth of knowledge and experience dealing with charities and will help guide you through the process every step of the way. To learn more about the tax liabilities for trustees of charities and non-profit organizations call us today on 08000 235 234 or email at firstname.lastname@example.org.