Increases to charities’ small trading exemption limits
As announced in the Budget, from April 2019, the Government will increase the upper limit for trading that charities can carry out without incurring a tax liability.
This will allow charities to undertake more trading activity before a trading subsidiary is needed and is a welcome change having been at the same rate for almost 20 years. CTG called for this change in its Budget submission and the Minister was asked about it directly at the CTG Tax Conference. A letter from CTG Chairman John Hemming calling for this change following discussion at the CTG Tax Conference can be read here.
A Tax Impact and Information Note can be read here.
The current rules are:
| Annual charity income | Maximum non-primary purpose trading |
| Under £20,000 | £5,000 |
| £20,001 to £200,000 | 25% of your charity’s total annual turnover |
| Over £200,000 | £50,000 |
| This measure will increase the rates to: | |
| Annual charity income | Maximum non-primary purpose trading |
| Under £32,000 | £8,000 |
| £32,000-£320,000 | 25% of income |
| Over £320,000 | £80,000 |
Background to the measure
While charities may trade more or less freely in pursuit of their charitable objectives, there are restrictions on engaging in trades solely to generate funds for the charity.
A charity does not pay tax on profits that it makes from charitable trading that is part of its primary purpose, for example, sale of tickets for a theatrical production staged by a theatre.
Where a charity’s trading does not relate to its primary purpose, for example, a charity sells Christmas cards to raise additional funds, its profits are also exempt from tax if its turnover is below the small trading tax exemption limits.
Depending on the particular circumstances of a case, the level of non-charitable trading is one consideration that the Charity Commission for England and Wales uses in determining whether an organisation was established for exclusively charitable purposes.
Some charities’ governing documents may contain additional restrictions on non-charitable trading. The change in the threshold for tax purposes does not override these provisions and charities will need to ensure that they comply with them even if they satisfy the new threshold for tax purposes.