Corporation Tax for charities

Income that might not be exempt

Various sources of income might not be exempt from corporation tax in the hands of a charity, depending on the circumstances. Common issues may include:

• hire of facilities – this may include room hire if the hire includes additional facilities or services like AV equipment, sports equipment or tea/coffee facilities
• support provided to other charities – if the service provided is not within the charity’s objectives
• fundraising sales outside of a qualifying fundraising event (e.g. raffle ticket sales)
• sale of property – if the property is substantially developed for sale or if it is sold to a developer with an overage agreement.

Charities can benefit from a small-scale trading exemption, which allows a limited amount of trading profit to remain tax free. The exemption applies if:

• the total non-charitable trading income does not exceed £80,000 or
• 25% of the charity's total income (whichever is lower).

Provided the charity’s total trading income from non-exempt sources does not exceed this amount in an accounting period, then all non-charitable trading income should be covered by the small-scale trading exemption. If the limit is breached, non-charitable trading income will be taxable (including the first £80,000). However, the small-scale exemption will still apply if the charity had a reasonable expectation on the first day of the accounting period that the limit would not be exceeded in that period.

Non-charitable expenditure and investments

Where a charity incurs expenditure that is not exclusively for charitable purposes, it may lose its charitable tax exemptions on an equivalent amount of attributable income. This non-charitable expenditure includes losses from a non-primary purpose trading activity, as well as any investments that do not qualify as approved charitable investments.

Under current rules, there are various specific types of investment that qualify automatically as approved charitable investments (for example listed securities and property). However, under new legislation expected to be introduced from April 2026, investments of any kind will qualify only if it the investment is made for the benefit of the charity. This can be interpreted as either a financial benefit, a charitable benefit, or both.

It is important to note that these rules also apply to investments and loans made by the charity to a subsidiary company.

For more information or to discuss this topic further, please contact Jon Daley or your usual Crowe contact.