As a charity you can get certain tax reliefs. To benefit you must be recognised by HM Revenue and Customs (HMRC).
Charities don’t pay tax on most types of income as long as they use the money for charitable purposes.
You can claim back tax that’s been deducted, e.g. on bank interest and donations (this is known as Gift Aid).
Tax Relief for Charities
As a charity you don’t pay tax on most of your income and gains if you use it for charitable purposes - this is known as ‘charitable expenditure’.
This includes tax:
- on donations
- on profits from trading
- on rental or investment income, eg bank interest
- on profits when you sell or ‘dispose of’ an asset, like property or shares
- when you buy property
To get tax relief you must be recognised by HM Revenue and Customs(HMRC).
Gift Aid for Charities
You can claim back 25p every time an individual donates £1 to your charity - this is called Gift Aid.
You must be recognised as a charity for tax purposes.
You can claim Gift Aid online - you should get your payment within 5 weeks.
The donor must:
- have paid at least as much in Income Tax or Capital Gains Tax in that tax year as you want to claim in Gift Aid
- make a Gift Aid declaration that gives you permission to claim it
If the donor hasn’t made a declaration you may still be able to claim on cash donations of £20 or less, eg from a collection.
VAT for Charities
Charities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses.
They pay VAT at a reduced rate (5%) or the ‘zero rate’ on some goods and services.
Items that qualifies for the zero rate:
- advertising and items for collecting donations
- aids for disabled people
- construction services
- drugs and chemicals
- equipment for making ‘talking’ books and newspapers
- lifeboats and associated equipment, including fuel
- medicine or ingredients for medicine
- resuscitation training models
- medical, veterinary and scientific equipment
- goods for disabled people
- motor vehicles designed or adapted for a disability
- rescue equipment