HM Revenue & Customs updates guidance for charities on tax returns

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HM Revenue & Customs (HMRC) has updated its guidance on when charities, including academy trusts and independent schools, must submit a tax return.

For many academy trusts there will be no need to complete a tax return where all their income and capital gains are exempt.

However, if an academy trust or independent school receives income or capital gains which are not exempt from tax, it must notify HMRC.  Similarly, if an academy trust or independent school uses income for any non-charitable purposes (known as non-charitable expenditure), this may also result in a tax liability.  In either case it will need to complete a tax return.  Likewise, if for any reason HMRC sends a notice to complete a tax return, the academy trust or independent school must do so.

The guidance also serves as a reminder that, if an academy trust’s trading activities are not covered by an exemption, it may need to set up a trading subsidiary to carry on these activities.  In these circumstances the academy trust will need to liaise with the Education Funding Agency.  The same principle applies to independent schools carrying on trading activity.

As an example, we have been approached by a school which regularly receives significant sums through commercial sponsorship.  This type of trading activity will generally be taxable if it exceeds the thresholds set under the small trading exemption.  If so, it will likely also be beyond school’s powers as set out in its articles of association, which means the directors will have acted in breach of duty and could in principle be required to account to the school for its losses arising from their breach.

For more information please contact Chris Hook or 0191 211 7929.