Taxation

Trustees are responsible for ensuring the charity arranges its affairs so that it does not pay unnecessary tax and meets its requirements to pay tax.

Charities benefit from some exemptions from tax, but not from all taxes.

Tax benefits for charities include:

• relief from a range of taxes - income/corporation tax (for certain types of income), capital gains tax, stamp duty and inheritance tax (in relation to gifts to a charity)
• some specific VAT benefits
• at least 80% mandatory relief from business rates (for buildings that are used further their charitable aims)
• tax-effective giving schemes, where tax paid can be reclaimed from certain donations given to a charity.

Some taxes apply to registered charities in the same way they apply to other charities. These include PAYE in relation to the employment of staff, and in most areas of VAT.

Tax affairs can be complex and the above is only a very brief outline of tax responsibilities. Trustees may need to take professional advice to help ensure the charity meets its tax obligations and minimises its tax liabilities.

For example, the VAT position of charities that are under contract to deliver services can sometimes be complex, and the relief from business rates can be affected if charities engage in trading or fundraising on the premises.

Failure to pay taxes could leave trustees being held personally liable for the breach. An unexpected tax bill can be a burden on a charity and in some cases may leave a charity without sufficient funds. This could lead to the trustees of an unincorporated charity being personally liable for the funds.