Increases to charities’ small trading exemption limits
Published 29 October 2018
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This publication is available at https://www.gov.uk/government/publications/increases-to-charities-small-trading-exemption-limits/increases-to-charities-small-trading-exemption-limits
Who is likely to be affected
This measure will affect charities.
General description of the measure
This measure will increase the small trading tax exemption limits for charities that apply to trading that does not relate to a charity’s primary purpose. The table below shows how the current small trading tax exemption limits are applied across the 3 limits.
| Annual charity income | Maximum non-primary purpose trading |
|---|---|
| Under £20,000 | £5,000 |
| £20,001 to £200,000 | 25% of your charity’s total annual turnover |
| Over £200,000 | £50,000 |
This measure will increase the rates to:
| Annual charity income | Maximum non-primary purpose trading |
|---|---|
| Under £32,000 | £8,000 |
| £32,000-£320,000 | 25% of income |
| Over £320,000 | £80,000 |
Policy objective
This measure will increase the limits to ensure that charities are able to maintain effective delivery of their charitable aims.
Background to the measure
This measure was announced at Budget 2018.
While charities may trade more or less freely in pursuit of their charitable objectives, there are restrictions on engaging in trades solely to generate funds for the charity.
A charity does not pay tax on profits that it makes from charitable trading that is part of its primary purpose, for example, sale of tickets for a theatrical production staged by a theatre.
Where a charity’s trading does not relate to its primary purpose, for example, a charity sells Christmas cards to raise additional funds, its profits are also exempt from tax if its turnover is below the small trading tax exemption limits.
Depending on the particular circumstances of a case, the level of non-charitable trading is one consideration that the Charity Commission for England and Wales uses in determining whether an organisation was established for exclusively charitable purposes.
Some charities’ governing documents may contain additional restrictions on non-charitable trading. The change in the threshold for tax purposes does not override these provisions and charities will need to ensure that they comply with them even if they satisfy the new threshold for tax purposes.
Detailed proposal
Operative date
The changes to the charities non-primary purpose trading exemption limit come into effect from 6 April 2019 for changes to Income Tax Act 2007 and from 1 April 2019 for changes to Corporation Tax Act 2010.
Current law
The charity tax exemptions that will be affected are in part 10 of Income Tax Act 2007 and chapter 3 part 11 of Corporation Tax Act 2010.
Proposed revisions
Legislation will be introduced in Finance Bill 2018-19 to amend section 528(6) Income Tax Act 2007 and section 482(6) and (7) of Corporation Tax Act 2010.
The current exemption threshold of £50,000 will be changed to £80,000 and lower band changed from £5,000 to £8,000.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects charities. There is no impact on family formation, stability or breakdown.
Equalities impacts
The equality implications of this measure have been considered, and it is not expected that it will have any adverse impacts on groups with protected characteristics.
Impact on business including civil society organisations
This measure will impact on around 50 charities whose non-primary trading turnover is from £5,000 to £8,000 or from £50,000 to £80,000.
One-off costs include familiarisation with this change. It is not anticipated that there will be any ongoing costs.
It is anticipated that this measure will have a positive impact on charities who engage in non-primary purpose trading marginally above the current threshold as they will no longer need to set up a trading subsidiary.
Operational impact (£m) (HMRC or other)
There will be no operational impacts for this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through regular communication with the charity sector.
Further advice
If you have any questions about this change, contact J Vambe at email charitypolicy.taxteam@hmrc.gsi.gov.uk.