When it comes to running a business on behalf of a charitable cause, the way you pay tax – and what you pay tax on – differs slightly from that which you may pay on standard income elsewhere. It is important to understand exactly what you are expected to be taxed for, and what you aren’t – as this will help you to build tax returns that need little in the way of intervention from HMRC should anything seem amiss. As accountants Watford charities depend upon for advice when building returns, we can help you decode some of the trickier rules regarding taxation of charities or non-profit organisation.
If your income is being used for what the government terms as charitable purposes, you do not need to pay tax on it. This means that any income from trading profits, donations, property purchases, asset sales or investments will not be subject to the same tax rules for charities that HMRC applies to general businesses and companies. This is, of course, great news – it’s more power to the charity and more money for you to spend ensuring that you protect the people whom you are raising money for. However, you will also need to be careful of income that is taxable under normal rules so that your tax returns are adequate and fair to both you and HMRC.
All charities and non-profit firms must pay tax on any dividends that you have received (at present) before 6 April 2016 – those considered historic and yet to be declared – any purchase you make (though you may be able to claim VAT dispensation) and any profits you may have gained from developing property or land under your name. You must, of course, also pay tax on any income or money that isn’t used for charitable purposes or on a non-profit basis. This must be fully itemised in a return and you must always pay HMRC tax when they request it. Failure to do so may result in a fine.
As accountants Watford firms and beyond rely upon for taxation advice, we are more than happy to help even the smallest of non-profit firms and charities navigate their tax returns. HMRC have made rules easier to understand in recent years but this still doesn’t mean that you have to go through tax alone. Tax guidance for charities is available for you no matter how you turn your profits and no matter what you do – and it is always important that you comply with HMRC ruling no matter what type of company you run – charitable or otherwise!