Charity tax liability

Your charity must pay tax on any income, gains or profits that are not covered by specific tax exemptions or reliefs. Where tax liability arises charitable trusts will pay tax under Self Assessment, all other charities pay Corporation Tax.

Also, if your charity uses money wholly or partly for non-charitable purposes, (non-qualifying expenditure) then the tax exemption(s) available for income received may be restricted which may result in a tax bill.

Please see the detailed guidance for more information about restriction of relief on charity income.

Examples of non-qualifying expenditure

• Any expenditure which does not fall within the specified objects of your charity (as detailed in your governing documents).
• Some payments to overseas bodies - your charity is responsible for ensuring that its charitable objects are met by the overseas body otherwise the expenditure may be treated as non-charitable.
• Investments made by your charity must be qualifying investments otherwise they will be treated as non-qualifying expenditure.
• Premiums paid on life assurance or capital redemption policies

Declaring a tax liability

For any period where you receive or suspect you may receive taxable income you must tell HMRC Charities.

You should also tell us when you make non-charitable expenditure, non-qualifying investments or loans as this may result in tax liability.

For more information please see the detailed guidance notes about non-qualifying expenditure; qualifying investments and loans; and life assurance and capital redemption products

A tax return is usually issued when you let us know about potential tax liability so that you can make a formal declaration of the income or non-qualifying expenditure.

If your charity fails to declare correctly and on time any tax liability penalties may be considered.

Paying tax

Charities must pay tax on time. If tax is paid late interest will be charged and penalties will be considered.