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The UK has acknowledged that the symbiotic relationship between charities and the tax system is a means of encouraging charitable activities and supporting organisations that work for the public good. Discover how the UK tax system benefits charities and donors in this detailed article.

1. Charity Registration

For a charity to qualify for tax reliefs, HM Revenue & Customs (HMRC) must first accept it. Registration with the Charity Commission for England and Wales, or equivalent organisations in Scotland and Northern Ireland, is necessary. To register, it is essential that the entity is established solely for charitable purposes that benefit the public.

2. Gift Aid

Among the key tax reliefs for charities in the UK is Gift Aid. Under this program, UK taxpayers' donations to a charity can lead to the charity recovering the basic tax rate on the gift, thus increasing the donation's value. A donation worth £100 can be worth £125 when the charity reclaims an extra £25.

If you are a higher or additional rate taxpayer, you can claim back the difference between your tax rate and the basic rate on donations. To achieve this, the taxpayer can either complete their Self-Assessment tax return or ask HMRC to adjust their tax code.

3. Business Rate Relief

In the UK, charities can be eligible for up to 80% mandatory rate relief on properties used wholly or mainly for charitable purposes. There is also the possibility of an additional 20% relief, which local councils can provide at their discretion.

4. VAT Reliefs

Charities, like other entities, have to pay VAT, but there are certain VAT reliefs, refunds, and exemptions that they can take advantage of. Among them are zero rates on ads and goods for charities when sold/leased.

5. Charity Shops

So long as charity shops sell donated goods in the course of their primary purpose, the income generated from sales is tax exempt. If a charity shop sells an individual's goods on a 'sale or return' basis and the individual donates the sales revenue to the charity, that amount can also be considered for Gift Aid.

 6. Legacy Gifts

A person can include charitable donations in their will, and they will not be taxed as part of the inheritance. Additionally, if a minimum of 10% of a person's "net estate" is donated to charity, the Inheritance Tax rate on the rest of their estate will decrease from 40% to 36%.

7. Charitable Investments

Charities rarely have to pay taxes on the gains and income generated from investments like stocks, shares, and rental properties, as long as the income is used for charitable purposes.

Conclusion

Charitable activities are encouraged and supported by the UK tax system through reliefs and exemptions, which ensure that charities receive the most funds possible. Donors who understand these reliefs can make contributions that are more impactful and receive personal tax benefits. Charities must be diligent in understanding and applying these provisions correctly to ensure they follow the law and maximise the benefits.