HM Revenue & Customs updates guidance for charities on tax returns

HM Revenue & Customs (HMRC) has updated its guidance on when charities and Community Amateur Sports Clubs (CASCs) must submit a tax return.

For many charities and CASCs there will be no need to complete a tax return where all their income and capital gains are exempt.

However, if a charity receives income or capital gains that are not exempt from tax, it must notify HMRC.  Similarly, if a charity uses income for any non-charitable purposes (known as non-charitable expenditure), this may also result in a tax liability.  In either case the charity will need to complete a tax return.  Likewise, if for any reason HMRC sends a notice to complete a tax return, the charity or CASC must do so.

The guidance also serves as a reminder that, if a charity’s trading activities are not covered by an exemption, the charity may need to set up a trading subsidiary to carry on these activities in order to avoid a tax liability.

As an example, we have been approached by a number of charities recently which regularly receive significant sums through commercial sponsorship.  This type of trading activity will generally be taxable if it exceeds the thresholds set under the small trading exemption.  If so, it will likely also be beyond the charity’s powers as set out in its governing document, which means the trustees will have acted in breach of duty.

For more information please contact Chris Hook using 0191 211 7801 or [email protected].