Small trading tax exemption for charities

Source: HM Revenue & Customs | | 22/04/2021

The tax treatment of charities can be complex. Many charities trade either as part of their charitable interests or to raise funds. As a first step, any charity hoping to benefit from any beneficial tax treatment needs to be recognised as a charity for UK tax purposes by HMRC as well as meeting other criteria.

A charity will not pay tax on profits it makes from trade if:

  • they are making money to help their charity’s aims and objectives, known as ‘primary purpose trading’
  • their level of trade that is not primary purpose falls below the charity’s small trading tax exemption limit
  • they trade through a subsidiary trading company

The charity must pay tax on any other profits.

The small trading tax exemption limits are as follows:

Charity’s gross annual income Maximum permitted small trading turnover
Under £32,000 £8,000
£32,001 to £320,000 25% of your charity’s total annual turnover
Over £320,000 £80,000

If the charity’s small trading turnover is higher than the exemption limits, then they are required to pay tax on all of their profits from that trade.