Getting Tax Exemptions as a Non-Profit – A Short Guide


Tags – Tax Exemptions as a Non-Profit


As indicated by the naming ‘non-profit organization’, non-profits are not meant to be pursuing profits. However, this does not mean that non-profit organizations do not need to be accounting for the finances coming in and out.

Here, the outs are easier to explain as, like any other financial body, non-profit organizations have expenses that take out money from their ecosystem. And, this movement of money out is not just limited to spending on the cause that the nonprofit organization is pursuing. Rather, all other expenses, e.g. employee salaries and expenditure on the fulfilment of the cause are all included.

On the other hand, the money coming in can be coming from various sources too and is not just confined to the charitable money generated by a non-profit. Instead, non-profits are known to generate money from more mainstream business methods too, e.g. investments and membership fees.

All in all, in the UK, nonprofits are obligated to submit 3 areas of accounting. Any specific requirements are included in the coming sections:

  1. Set of Accounts
  2. Annual Returns
  3. Trustees’ Annual Report

Here, it is important to understand that, even though most of the money generated by a non-profit can be tax exempt, there are cases where these exemptions do not apply.


Non-Exempt Sources

Out and out, there is one specific stream of money that is not tax exempt for nonprofit organizations, i.e. money coming from developing land and owned properties. In addition, it goes without saying that any money generated from non-related areas from the non-profit activities is also not exempt from taxes.

Also, all purchases made by a nonprofit are not tax exempt. However, the VAT rules for nonprofit organizations are slightly different. We will cover this point in a different blog in the future.

Here, you should also keep in mind that filing your tax returns with the above non-exempt sources depends on how you have set up your nonprofit. To learn more about this, get in touch with us.

Now, let’s look at the specific rules for different types of nonprofits.


1. Charities / Community Groups

Any charity that makes more than £5,000 per year is obligated to submit their accounts. This condition also applies to charities that have not registered with the Charity Commission.

Other specifics include:

  • Under £10,000 per year – all money must be outlined in their specific sections
  • Above £10,000 – Accounts must be submitted within 10 months of reaching that figure
  • Between £25,000 and £250,000 – Accounting must be done on receipts and payments or accrual basis
  • Between £250,000 and £1,000,000 – Accounts must be submitted on accrual basis
  • Over £1,000,000 – An audit is required

Please check further information from us on accrual basis accounting and our auditing services to learn more.


2. Social Enterprises – Community Enterprises / Co-Operatives / Credit Unions / Housing Associations / Leisure Trusts etc.

Social enterprises are legally allowed to be owned by people and can hire others. In addition, similar to traditional businesses, social enterprises are allowed to sell products and services. However, instead of having shareholders that benefit from the profits being made, the profits generated by social enterprises are invested back into the business.

How you file your taxes as a social enterprise depends on how you have legally set up. We will cover this topic in another blog in the future. Meanwhile, get in touch to learn more.


Tax Exemptions

Finally, it is also important to cover the specific forms of exemptions, enjoyed by non-profit organizations. This includes:

  • Corporation Tax
  • Income Tax for Trustees
  • Certain claims, e.g. Gift Aid

In any case, please keep in mind that, like any traditional business, non-profit organizations can also be fined for not filing their tax returns in time.


To learn more, get in touch with us today.


And, if you liked this blog, you may also like:

  1. Inheritance Tax: Understanding Gifts and Exempt Transfers
  2. Information Needed by Your Accountant for Year-End Taxes
  3. Typical Expenses in a Business – An Accountants Perspective
  4. Child Tax Credits – How do They Vary?

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