The tax treatment of charities can be complex. Many charities trade either as part of their charitable interests or to raise funds. As a first step, any charity hoping to benefit from any beneficial tax treatment needs to be recognised as a charity for UK tax purposes by HMRC as well as meeting other criteria.
A charity will not pay tax on profits it makes from trade if:
- they are making money to help their charity’s aims and objectives, known as ‘primary purpose trading’
- their level of trade that is not primary purpose falls below the charity’s small trading tax exemption limit
- they trade through a subsidiary trading company
The charity must pay tax on any other profits.
The small trading tax exemption limits are as follows:
| Charity’s gross annual income | Maximum permitted small trading turnover |
| Under £32,000 | £8,000 |
| £32,001 to £320,000 | 25% of your charity’s total annual turnover |
| Over £320,000 | £80,000 |
If the charity’s small trading turnover is higher than the exemption limits, then they are required to pay tax on all of their profits from that trade.
Source: HM Revenue & Customs | 20-04-2021
