We are worried about some changes in the tax rules for charities which could result in a tax liability if we incur non-charitable expenditure. How can this be as I though charities were exempt from tax and what is non-charitable expenditure?
AnswerWhat is ‘Non-Charitable Expenditure?’- Expenditure which is not incurred for charitable purposes only.
- Any payments to an overseas body where the charity has not taken reasonable steps to ensure the payment will be applied for charitable purposes.
- Any investments and loans made by the charity which are not qualifying investments and loans.
- Amounts treated as non-charitable expenditure as a result of transactions with substantial donors which fail the tests in S506A ICTA 88.
- Trading losses which arise from non-primary purpose trading.
If a charity does incur this type of expenditure it could be deemed to be taxable by HMRC so further guidance should be sought. New rules effective for chargeable periods starting on or after 22 March 2006 and can be carried back 5 years!
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Charities Update Q&A 