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Finance Bill 2019 - Key Tax Changes for Charities

on Tuesday, 05 March 2019.

On 12 February 2019, the Finance Act 2019 received Royal Assent bringing into law measures announced in the October 2018 Budget.

Among the changes is some good news for charities. We highlight the key changes below.

Small Trading Exemption - Threshold Raised

While charities may trade more or less freely in pursuit of their charitable objects, there are restrictions on trading solely to generate funds for the charity, ie in a way that is not in pursuit of the charity's objects. Currently the maximum non-primary purpose trading that a charity can undertake without having to pay tax on that income is:

  • £5,000 if its overall annual income is under £20,000
  • 25% of its total annual turnover if its income is between £20,001 and £200,000
  • £50,000 if its annual income is over £200,000

Any income above these thresholds will be taxable and some charities choose to set up trading subsidiaries to minimise tax liabilities.

From April the small trading exemption will increase to:

  • £8,000 if a charity's income is under £32,000
  • 25% of its total annual turnover if its income is between £32,000 and £320,000
  • £80,000 if its annual income is over £320,000

This is a welcome change - the rate has been the same for almost 20 years - and allows a charity to undertake more primary purpose trading before it should consider setting up a trading subsidiary.

Gift Aid Donor Benefit Threshold Simplified

There is currently a cap on the value of a benefit or gift that a charity may give to a donor (for example a thank you gift) in exchange for a donation that the charity will claim Gift Aid on.

Currently, for donations of up to £100 the benefit is capped at 25% of the donation. For those donations of £100 to £1,000, the benefit can be worth up to £25. Lastly for donations of more than £1,000, the gift or benefit can be up to 5% of the donation, with a maximum benefit of £2,500.

From April 2019 these rules will be simpler. The number of thresholds drops from three to two and the current mix of monetary and percentage calculations is replaced.

The maximum value of benefit will remain at £2,500 and the value of benefit will remain at 25% for the first £100. However, for donations of more than £100 the benefit could be worth more:

  • 25% of the first £100
  • 5% of the amount of the donation over £100

As an example, for a donation of £1,000, where previously the benefit could have only been £25, a charity will now be able to provide a benefit of £70: 25% of the first £100 plus 5% of the remaining £900.

Beneficiaries of Tax-exempt Employer-provided Pension Benefits

Employers often provide death in service benefits through life assurance policies, or provide retirement benefits through a qualifying pension scheme. Employees usually name beneficiaries to receive any payment due upon their death and any retirement benefit. At the moment, premiums paid into these schemes by employers are tax exempt if the beneficiary of the policy is the employee or a member of the employee’s family or household. From April, employees will be allowed to make the beneficiary any individual or registered charity, meaning that registered charities will be able to benefit from these premiums.

This measure updates the exemption to ensure that the tax charge remains relevant and fair (to modern-day society) and makes it consistent with existing government policy of providing tax relief on charitable donations.

For more information please contact Kate Parkinson in our Charities Law team on 0117 314 5460.