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Introduction to tax compliance

Charities are not exempt from taxation but they do have the benefit of a number of tax exemptions (subject to complex anti-avoidance provisions). Well-run charities usually do not suffer any direct taxation.

A charity must complete and submit Tax Returns in three specific circumstances:

1. •

   if served with a notice requiring it to file a Return

2. •

   if it has taxable income, gains or profits not covered by a relief or tax exemption, for example income generated from trading that is not within the charitable trading exemption (see the Tax treatment of the charity guidance note)

3. •

   if it has used income or gains for non-charitable purposes or non-qualifying investments

The type of Tax Return required depends on the way the charity is set up.

If a charity does not declare how much tax it owes correctly and on time, HMRC may charge a penalty.

HMRC have begun to periodically publish a Charities Newsletter which includes topical issues relating to charities, taxation and a Community Amateur