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Corporation tax for non-profits

We are a non-profit organization, working in overseas development and conservation and registered as a company limited by guarantee in England since 2005.   We have just received the CT04 Corporation Tax review form and I would just like some advice on filling it out. We have a small reserve fund but do not make any profit, and rely on donations from charitable trust funds and private individuals.  All our staff are volunteers. I assumed that we would not be liable for Corporation Tax, but I just wanted to know what to expect from HMRC when I return the form.

Thanks, Chris


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09th May 2010 11:44

The short answer...

... is 'See an accountant', as advising on your precise circumstances is probably too detailed for a forum like this.

Suffice to say that even registered charities have to do CT returns and can sometimes pay Corporation Tax, so there is no automatic get-out for 'non-profit'.

They should be able to advise your management board on the tax consequences of your current activities (if any) and on the best way of responding to the revenue and meet ing any reporting requirements.

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09th May 2010 12:44


It's not whether you are not for profit but whether you are trading.

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By Anonymous
09th May 2010 13:13


Thanks for your replies.

Pls could you define what is meant by 'trading' according to HMRC?  It all seems a bit vague on their website.  We are obviously not buying and selling goods or services for profit although we do receive income from grants and donations (which is all spent on charitable work).  However, we are not registered as a dormant company and submit abbreviated accounts to companies house each year.



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09th May 2010 14:07

You say "all spent on charitable work"


1. It can't all be spent, as you have reserves

2. If you aren't a charity, are you sure it is charitable work?

And you are right, the definition of trading is very vague (and whether or not you make a profit from it is not the only determinant). But the sort of uncertainty you have expressed could well be exposing your organisation to unnecesssary risk. Can I ask why you're reluctant to take professional advice, even as a one-off?


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09th May 2010 14:49

Are you also registered with the Charity Commission?

And if not why not?

But I digress, all 'Corporations ' who 'trade with a view to profit' are liable to Corporation Tax so HMRC periodically ask for returns from all sorts pf organisations, including charities, in order to gret a signed confirmation that you are not trading. That then gives them an opportunity in the future to demonstrate fraud or reckless behaviour if they subsequently find out that you are trading...

If you are confident you are not trading you can just stick a '0' in aall the appropriate boxes, sign it and send it back. If you are not confident then you need to get detailed advice beyond the scope of this forum. Can you in fact demonstrate that the monies you send abroad are in fact used for charitable purpose and have not been used for example to set up a fee paying school or to provide working capital for a trade?


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By Anonymous
09th May 2010 15:46

Can I clarify a bit for you

Unincorporated associations and companies limited by guarantee are entities liable to corporation tax, just as share limited companies are.

The question then is whether or not the body concerned has profits liable to corporation tax.

If they are a registered charity then usually it is only some types of trading income which remain liable.

If they are not a registered charity - and as you describe yourself as a not for profit organisation so I assume you are not - there are plenty of bodies out there that are non profit making, but not within the legal meaning of charity and therefore not able to register as such or to claim the tax exemptions- they are liable to corporation tax on all their income.

Income means trading income, which has its usual meaning of an activity conducted (broadly) for profit with some degree of organisation, reselling of good etc - there is a raft of case law on this.

Income also means all types of investment income including bank interest and rents. In my experience, this is usually the area where not for profit organisations have to make CT returns.

One off events to raise money may bring you within the rules for trading. There is advice on this on HMRC website within the VAT part.

I would strongly recommend, as stated above, that you invest some money in professional advice - indeed I would suggest your directors or trustees may well be neglecting their duties if they do not.


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By Anonymous
09th May 2010 16:15

Thanks for all your help.

I am confident that we qualify as a non-trading company from your information, but I guess it does look like we will have to get confirmation from a professional just to be safe.  I just wanted to gauge the best options first because we do not have much spare funding to spend on our administration.

All our work is definitely non-profit  and our budgets are very small and well-accounted for.  The only reason we have a reserve is because of funds that are already earmarked for work but have not yet been spent.

Thanks, Chris



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Don't anticipate a problem

Hi Chris - from what you say, I don't see that you have a problem and would be happy to look at the details and advise free of charge.  Contact me via private message.

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10th May 2010 15:23

One last thought...

If you were to become a charity, you could use the tax system to your advantage by claiming Gift Aid on the donations from private individuals (assuming they are UK taxpayers). You may also find it easier to raise funds from other sources.


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By Anonymous
18th May 2010 12:11

You don't need to be a registered charity to reclaim gift aid

You can request to register with hmrc to reclaim gift aid.  This is quite a quick process and is useful to smaller / new charitable organisations waiting to register as charities.

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