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small trading exemption charity

Small trading tax exemption increases

On 5th April 2019, changes to the small trading exemption for charitable companies and CIOs came into effect. The same changes took effect for unincorporated charities on 1st April 2019.

A charity is considered to be ‘trading’ if it sells goods or services to customers.

Charities must pay tax on any profits that are made from trading, unless one of the following applies:

• you are making money to help your charity’s aims and objectives, known as ‘primary purpose trading’;
• your level of trade that is not primary purpose (i.e. selling charity Christmas cards) falls below the charity’s small trading tax exemption limit; or
• you trade through a subsidiary trading company.

Prior to April 2019, charities with income exceeding £200,000 did not pay tax on the first £50,000 generated from trading activities.

The table below shows how the current small trading tax exemption limits are applied:



What does the new small trading exemption mean for your charity?

For the most part, this is good news for charities with taxable trading income of between £50,000 and £80,000. However, bear in mind that if trading income exceeds £80,000, the full amount will be subject to tax. The £80,000 is not a tax-free allowance.

Partner Toni Hunter adds “You should also consider the compulsory VAT threshold, which is currently £85,000, and the Making Tax Digital obligations that this brings. Personally, I welcome this increase in the limit because trade is important as a fairly reliable and consistent source of income, yet managing a trading subsidiary can be burdensome for smaller charities, both financially and in respect of governance.” 

Here at George Hay, we recognise that managing a charity or social enterprise can be challenging and extremely demanding in respect of both time and money.

Our experienced accountancy professionals are familiar with the regulatory requirements affecting charities. We also understand the unique challenges facing the sector, including the need to operate as efficient, cost-effective businesses. 

Our proactive and practical advice is designed to help your charity find financial stability whilst also achieving its core objectives.

If you’re concerned about how the latest changes may impact upon your charity, you should seek specialist advice. Contact us on 01480 426500, to see how we can turn your concerns into confidence.


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