Direct Tax


The type of direct tax charities are liable for will depend on whether they are constituted as companies or as charitable trusts.  Generally charities are either liable to corporation tax or income tax.  However, exemptions are available so that it is unusual for a tax liability to crystallise.

There are circumstances however, where a charity will be required to pay tax and costs will be incurred for compliance with direct taxes even when they are not paid.

Direct tax exemptions, provided that they are applied to charitable purposes only:

  • Trading profits in certain limited circumstances
  • Rental income being income from furnished and unfurnished lettings
  • Interest and other annual payments
  • Income from non-trading intellectual property rights
  • Gift Aid receipts
  • Dividends
  • Lottery income where the charity is registered as the promoter
  • Capital gains


Charities are exempt from paying tax on 'Primary Purpose Trading' - a trade which is carried out as part of the charity's primary purpose

For non-charitable trading charities are exempt from paying tax on trading income up to a limit of 25% of the charity's total incoming resources and no more than £50,000. 

In the our 2010 Election Manifesto, CFG asked that the Government review this de minimis level in light of the mixed nature of charity trading.  Trading is an increasingly important source of income for charities and the current limit is deemed by many to be far too low.  Many charities trading over this limit now operate a trading subsidiary from which the profits can be Gift Aided back to the charity in order to avoid paying this direct tax on trading income which is meant for charitable purposes.  

For more detailed information on direct tax and trading please see the CFG publication The Tax Implications of Charity Trading, written by Pesh Framjee and members of the charity tax team at Crowe Clark Whitehill.  


The government recently launched a consultation on the taxation of controlling persons. It proposed that a provision be introduced to ensure that controlling persons have income tax (PAYE) and National Insurance deducted at source by the engaging organisation. CFG had some concerns about how this may impact on charities, where they are the 'engaging organisation', and submitted a response to this consultation. This response can be found here.


On line filing of CT600 returns, computations and annual accounts is mandatory from 2011 tax year onwards. Charities who are affected should have received notification from HMRC by now.

In summary, documents provided to HMRC, now have to be translated from whatever they are produced in (Tax Software, Accounts Preparation Software, Accounting System, Excel or Word) into a computer language called iXBRL, using a device that looks like a spreadsheet called a taxonomy. This will then be uploaded to the HMRC and Companies House database.

In November 2010 HMRC announced that smaller charities with a combined income of £6.5million, will be able to submit their accounts in pdf format until HMRC has produced free software suitable for them. These charities will still need to submit their computations in iXBRL format. For further information please see Chapter 6 of the guidance notes on the HMRC website.

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