Charitable exemption is the relief that takes most of a charity's income and gains out of Corporation Tax, provided they are applied for charitable purposes only. A charitable company or CIO claims it on the CT600E.
What is exempt
A charity does not get a blanket exemption. Specific kinds of income are exempt, each on condition that the money is used for charitable purposes:
- donations and Gift Aid;
- profits from primary purpose trading;
- small amounts of other trading, within the small trading exemption;
- rents and other property income;
- interest, dividends and other investment income;
- chargeable gains.
What is not
Profits from other trading above the small trading limit are taxable. And if a charity spends money on something that is not charitable, a matching amount of its income loses the exemption.
Claiming it
Charitable exemption is not automatic: it has to be claimed. A charity that receives a notice to file must send a CT600, even if no tax is due, and makes the claim on the CT600E.
In Tax Optimiser
When the CT600E says all income and gains were applied for charitable purposes, the computation removes the whole surplus from charge and shows it as profits exempt from Corporation Tax.
Read more: Corporation Tax for charities and CASCs (CT600E).