Corporation Tax for Charities & CICs

The Charity Exemption

Charitable companies (companies limited by guarantee that are registered charities) benefit from a broad Corporation Tax exemption. The following types of income and gains are exempt:^[1][2]

• Trading profits — where the trade is carried on in the course of the charity’s primary purpose, or where the profits are applied solely for charitable purposes
• Investment income — interest, dividends, and other investment returns
• Property income — rental income from land and buildings
• Chargeable gains — gains on the disposal of assets
• Loan relationship credits — interest income from loans

Conditions for the Exemption

For the exemption to apply, the income or gains must be applied for charitable purposes only. In practice, this means:^[2]

• The charity’s activities must fall within its stated charitable objects
• Income must not be used for non-charitable purposes (such as private benefit to trustees or connected persons)
• The charity must be recognised by HMRC as a charity for tax purposes

Non-Primary-Purpose Trading

If a charity carries on a trade that is not part of its primary charitable purpose (for example, a charity shop selling donated goods is primary purpose, but a charity running a commercial restaurant may not be), the trading profits may be taxable unless:

• The trade is mainly carried on by beneficiaries of the charity
• The trading turnover falls below the small trading exemption threshold (the higher of £8,000 or 25% of the charity’s total income, capped at £80,000)
• The profits are donated to the charity by a trading subsidiary under Gift Aid

Community Interest Companies (CICs)

A CIC is a special type of limited company designed for social enterprises. However, CICs are not charities and do not benefit from the charitable Corporation Tax exemption.^[3]

Key differences between charities and CICs:

CICs pay Corporation Tax at the normal rates (19% small profits / 25% main rate) on their taxable profits, just like any other limited company.

Community Amateur Sports Clubs (CASCs)

Community Amateur Sports Clubs registered with HMRC benefit from a tax regime similar to charities:^[4]

• Exemption from Corporation Tax on trading income up to £50,000 per year (and property income up to £30,000)
• Exemption from Corporation Tax on interest and Gift Aid donations received
• Exemption from chargeable gains
• Eligibility for Gift Aid repayments on donations
• Mandatory 80% business rates relief

CASCs must be open to the whole community, organised on an amateur basis, and exist to promote participation in eligible sports.

Filing Requirements

Charitable companies, CICs, and CASCs must all comply with standard Corporation Tax filing requirements:^[1]

• File a CT600 for each accounting period (charities claim their exemptions on this return)
• File statutory accounts at Companies House
• Charities with income over £25,000 must also file with the Charity Commission
• CASCs file with HMRC (they are not Companies House entities unless also incorporated)

Further Reading

• What Is Corporation Tax? — an overview of the UK’s company tax
• Who Pays Corporation Tax? — which organisations are within the charge
• Allowable Business Expenses — deductible expenses for all companies
• The CT600 Tax Return — filing requirements including charity exemption claims
• Company Accounts Requirements — accounting standards for different entity types