8.9 Tax treatment of charitable community benefit societies
Charitable community benefit societies in Scotland are registered with and regulated by the Scottish Charity Regulator, and enjoy the same tax treatment as all other registered charities. In England and Wales, charitable community benefit societies with exempt charity status are subject to the same fiscal treatment as registered charities. Such societies are recognised as exempt charities by HMRC and are given an HMRC charity reference number. Charities benefit from a wide range of exemptions and reliefs, including gift aid, corporation tax relief and some exemptions from VAT.
HMRC provides detailed guidance on VAT for charities and other forms of not-for-profit organisations including charitable community benefit societies. There are special VAT exemptions for charities active in amateur sports, education, cultural events and activities, and welfare services. Welfare advice or information is subject to a reduced VAT rate of 5%.
Gifts, grants and donations to charitable community benefit societies may qualify for Gift Aid if the voluntary income is received from an individual who is a UK taxpayer. Gift Aid donations are assumed to have been made by donors who have already paid the basic rate of tax on the donation, and qualifying charities can reclaim this tax deduction from HMRC on its gross equivalent; the amount before the basic rate was deducted. Higher rate tax payers can reclaim the difference between the basic rate and the higher tax rate they pay on the gross donation to the charity.
Charitable community benefit societies are exempt from paying Corporation Tax on charitable trading profits, rental income, interest and capital gains. Donations used for charitable purposes are not liable for Corporation Tax. When a corporate entity makes a qualifying donation to a charity, the amount paid can be set against its profits for Corporation Tax purposes. This includes donations made by wholly-owned subsidiaries of charities, but it does not apply to any dividends paid by the subsidiary to the parent charity. Non-charitable community benefit societies are taxable in the normal way, as described in Section 8.10.
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