Navigating Tax for Charities: Challenges and Solutions
Written by Dan Guy | Director | Cubed Tax
Diversification and associated tax issues.
When it comes to Corporation Tax, charities often face unique challenges. Tax planning can be complex, and it’s not uncommon for charities to put it on the backburner while focusing on their mission. In this article, we’ll highlight the importance of addressing Corporation Tax matters early, particularly issues related to income from non-charitable activities, and how working with HMRC can help avoid problems.
Charities are driven by their purpose to make a difference, but it’s important not to overlook tax responsibilities. Proper tax planning isn’t just about staying within the law—it’s also a key part of keeping your organisation financially secure.
Many of our charity clients aim to diversify their income, but generating income outside their primary charitable work can bring unexpected tax challenges. Income that doesn’t fall under the charity’s main purpose may be subject to Corporation Tax. Ignoring this could result in penalties, so recognising and managing these income streams is vital to stay compliant with tax regulations.
We often help clients with unresolved tax issues from the past. It’s crucial to engage with HMRC to address any mistakes, clear up outstanding matters, and create a solid foundation for the future. Being open and proactive with HMRC shows a commitment to transparency, and at Cubed Tax, we have plenty of experience in handling these kinds of discussions.
One effective way for charities to manage non-primary income is to set up a trading subsidiary. This separate company can handle commercial activities, allowing the charity to earn income in a tax-efficient way. If done correctly, a trading subsidiary can also make use of gift aid to support the charity even further.
Gift aid is a valuable tool for charities looking to maximise their funds. By setting up a trading subsidiary, the charity may be able to claim gift aid on eligible donations made to the subsidiary. However, careful planning is needed to ensure both entities work together effectively and meet the necessary requirements.
Conclusion
It’s essential for charities to address Corporation Tax matters promptly, particularly when dealing with income outside their main purpose. Resolving any historical issues with HMRC and considering solutions like trading subsidiaries can help charities stay compliant while boosting their financial health.
At Cubed Tax, we’ve successfully worked with HMRC to resolve past tax issues for charities and have advised on setting up new structures like trading subsidiaries. We also collaborate with VAT specialists to ensure the correct VAT group structures are in place when creating new entities.
If you’d like to explore these opportunities further, contact us for a free consultation at www.cubedtax.com.
About The Author
Dan Guy is the founder and driving force behind Cubed Tax, dedicated to delivering effective tax solutions for the Third Sector. A Chartered Tax Advisor and former member of the VAT Expert Group at the Charity Tax Group, Dan began his career at a big four firm, gaining valuable experience in housing, nonprofit, and public sectors. He works closely with tax specialists and lawyers to ensure clients have the right expertise when they need it. Passionate about providing premium service at great value, Dan simplifies complex tax issues, making them easy to understand and aligned with clients’ goals.
