Budget 2018: small trading exemptions for charities to increase

From April 2019, the government is to introduce a series of measures to reduce cost and administrative burdens on charities in order to ensure that they are ‘able to maintain effective delivery of their charitable aims’

At present, a charity does not pay tax on profits that it makes from charitable trading when such trading is part of its primary purpose. If the trading does not relate to its primary purpose its profits are also exempt from tax 'if its turnover is below the small trading tax exemption limits'.

Announced in the Budget Red Book, the government plans to increase the upper limit for trading that charities can carry out without incurring a tax liability from £5,000 to £8,000 for charities where turnover is under £20,000, and from £50,000 to £80,000 where a charity’s turnover exceeds £200,000.

These limits ‘apply to trading that does not relate to the charities’ primary purpose. The exemption recognises that in practice charities may engage in some small scale non-primary purpose trading without incurring a tax liability on the profits of that trade.’

Legislation to this effect is to be introduced in Finance Bill 2018-19 to amend s528(6) of the Income Tax Act 2007 and s482(6) and (7) of Corporation Tax Act 2010 (CTA 2010), and the changes will come into effect after 6 April 2019 for unincorporated charities and from 1 April 2019 for incorporated charities.

Furthermore, the individual donation limit under the Gift Aid small donations scheme is to be increased to £30, which will reduce the administrative impact of small collections by ‘relaxing the requirement to issue letters annually to donors’. Charity shops will also be allowed to use the Retail Gift Aid Scheme to send letters to donors every three years when their goods raise less than £20 a year, rather than every tax year.

Report by James Bunney

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