Charities and corporation tax

Why have HMRC asked my charity to submit a corporation tax return? Surely that is only a requirement of companies? Wrong!

Although for the most part charities are exempt from the requirement to pay corporation tax, there are some circumstances where charities are still required to submit a corporation tax return.

There are three particular circumstances which can lead to the requirement for a charity to submit a corporation tax return to HMRC:

1. If in a particular accounting period the charity has taxable income and/or taxable gains, which are not covered by any reliefs or other exemptions.
2. If HMRC have issued the charity with a notice to file a corporation tax return.
3. If the charity believes that the activities it has undertaken in the accounting period may be liable to corporation tax.

How do you file a corporation tax return?

Since 1 April 2011, for accounting periods ending on or after 31 March 2010, HMRC will only accept submissions in an online format.

The submission should include the charity’s financial statements and a corporation tax computation, as well as the corporation tax return itself.

Does the size of my charity affect the submission process?

In a word, yes. Any charities that have income of greater than or equal to £6.5m will have to submit their return and the accompanying financial statements in an iXBRL format, whereas ‘smaller charities’, i.e. those who, together with the income of any wholly owned subsidiaries, have income of less than £6.5m, do have the ability to submit a set of their financial statements in PDF format instead. Only the computations need to be submitted in the aforementioned iXBRL format.

Nevertheless, if the charity has completed the supplementary page CT600E of the corporation tax return, then no computation is required, as this extra page will clearly identify to HMRC that all of the income and gains of the charity are exempt from corporation tax and either have or will be applied for the charitable purposes for which they were intended. In this instance the charity should attach a PDF letter to justify why they have not submitted a computation.

Who do I speak to if I need help with my submissions?

In the first instance charities should always use their accountants or auditors for further clarification of these requirements, with HMRC also being available to help.

It should be noted, however, that the Charity Commission is not in a position to offer assistance.