Protecting your income

There is a common misconception that because charities are "non-profit," they are "non-tax." In reality, the tax landscape for the Third Sector is incredibly complex. From the nuances of VAT on fundraising events to the strict rules surrounding Gift Aid declarations, the risks are high.
Getting it wrong can lead to unexpected tax bills, interest, and penalties from HMRC. Getting it right, however, can unlock significant revenue streams. Armstrong Watson’s specialist tax team acts as an extension of your finance department, ensuring you claim every relief you are entitled to while remaining fully compliant.

Gift Aid: getting the details right

Gift Aid is worth 25p for every £1 donated, but HMRC’s auditing of Gift Aid is increasing. A simple administrative error in your declarations can lead to a "clawback" of years of claimed funds. We support you with:

• Health Checks: Reviewing your donation wording and audit trails to ensure they meet HMRC standards.
• The Small Donations Scheme (GASDS): Ensuring you are claiming on cash and contactless donations where individual declarations aren't collected.
• Donor Benefits: Advising on the limits of "thank you" gifts to donors (e.g., tickets or merchandise) to ensure they don't invalidate the Gift Aid claim.

Navigating VAT for charities

VAT is arguably the most complex area for charities. Unlike businesses, charities cannot always reclaim the VAT they spend.

• Business vs. Non-Business: We help you determine which of your activities count as "business" (taxable) and which are "non-business" (outside the scope). This distinction dictates how much VAT you can recover.
• Partial Exemption Methods: If you have a mix of taxable and exempt income, we can negotiate a "Special Method" with HMRC to help you maximise your VAT recovery rate.
• Cultural & Sporting Exemptions: Specific advice for museums, galleries, and sports clubs.

Trading subsidiaries: when to separate

Charities are allowed to trade, but only within strict limits. If your "non-primary purpose" trading (e.g., selling Christmas cards, running a café, or consulting services) exceeds the Small Trading Tax Exemption threshold (currently £80,000 for larger charities), you may be liable for Corporation Tax. We advise on:

• Setting up a wholly-owned trading subsidiary.
• Managing the Gift Aid shed (donating profits from the company back to the charity to eliminate tax).
• Correctly allocating costs between the charity and the subsidiary.

Property tax & capital allowances

Are you buying, building, or renovating a property? Charities can often obtain zero-rating for VAT on the construction of new buildings used for "relevant charitable purposes." However, you must issue the correct certificate before work begins. We guide you through this process to ensure you don't pay 20% VAT unnecessarily.