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HMRC internal manual

Business Income Manual

Meaning of trade: mutual trading and members clubs: mutual associations: specific activities: voluntary organisations and charities: tax exemption

S529 Income Tax Act 2007, S483 Corporation Tax Act 2010

The issue of fund raising by a local body was considered by the courts in the case of British Legion, Peterhead Branch, Remembrance and Welcome Home Fund v CIR [1953] 35TC509 - see BIM24475. The courts found that the fund raising activities in that case amounted to a trade - the activities being carried out on a significant scale in a manner akin to a commercial activity. The courts allowed a deduction for the costs that would have been incurred had not local volunteers given freely of their time and services in delivering the fund raising activities.

There is however an exemption for the profits of certain fund-raising events undertaken by charities and voluntary organisations. In any case where the exemption applies, you should not assess the profits arising to a charity or voluntary organisation (for example, a local committee or Round Table) from activities such as the occasional sale of goods from shops or stalls, the running of a donkey derby, fireworks displays, carnivals and other events even where the activities amount to trading.

There are two conditions that a charity or voluntary organisation must satisfy for tax exemption to apply to trade profits arising from the holding of a fund-raising event for charity:

  1. the event must be of a kind that falls within the exemption from VAT under Group 12 of Sch 9 Value Added Tax Act 1994; and
  2. the profits must be transferred to a charity or otherwise applied for charitable purposes.

The VAT exemption in (a) above covers events organised by charities and certain non-profit making bodies for charitable purposes or exclusively for the body’s own benefit:

  • whose primary purpose is the raising of money, and
  • that are promoted as being primarily for the raising of money.

The following events are excluded from exemption:

  • Exemption does not apply to any event where in its financial year a charity or body organises more than 15 events of the same kind in the same location. An event is disregarded for this purpose if it is held during a week in which the aggregate gross takings from events involving the charity or body of the same kind in that location do not exceed £1,000. Note that if the limit of 15 events is exceeded, none of the events concerned are exempt.
  • An event does not qualify for exemption where accommodation in connection with it is provided by the charity or body (or a connected charity) unless, broadly, the accommodation provided does not exceed two nights in total.
  • An event does not qualify for exemption if it is likely to cause distortion of competition and place a commercial enterprise carried on by a person subject to VAT at a disadvantage.

As regards profits from the running of lotteries and football pools, see BIM61600 onwards.