From April 2019, charities will be able to earn profits from non-charitable trading without paying income or Corporation Tax, so long as the turnover is no more than £80,000. The current upper limit is £50,000.
Currently there is no Corporation Tax (for companies) or income tax (for Trusts) on trading profits where the turnover does not exceed certain limits. For very small charities the upper limit is £5,000 per year. From April 2019 this will increase to £8,000. For larger charities the limit is 25% of their total income up to a maximum of £50,000. The upper limit will increase to £80,000 from April 2019.
The limit of £50,000 was set in 2000 and has not increased since then. The charity sector has long stated that it was too low and ideally should be doubled, or at least increased for inflation.
Wider consideration still needed
While this is a welcomed measure to reduce any bureaucracy, it is important that wider considerations are taken into account when deciding whether a trading activity should be passed through a separate entity, including whether it would be better to ring-fence any risk away from the charity. There may also be considerations with regard to VAT.
A welcomed reduction in administration
Charities have been asking for a practical solution to this problem for some time, and although a letter every three years will only reduce administration rather than eliminate it, the change is still welcome.
Upper limit now rectified
From 6 April 2017 charities have been able to claim GASDS not only on notes and coins, but also on contactless payments. However, the upper limit per donation remained at £20, although contactless payments can in fact be made up to £30. This anomaly will now be rectified, giving charities a further incentive to push ahead with contactless donation technology.
This change is expected to be implemented with effect from 6 April 2019. It also applies to donations made to Community Amateur Sports Clubs (CASCs)
Simplify group structure and reduce compliance costs
VAT groups can assist in simplifying group structures and reducing VAT compliance costs. It should also be noted that VAT groups are able to defer Making Tax Digital for VAT for a further six months to 1 October 2019.