Guidance

Connected charities and Employment Allowance: further guidance for employers and their agents

Updated 15 February 2023

If you are a charity or charitable trust, this guidance will help you decide if you are connected to other charities or charitable trusts, or if your charity is connected to a business. This will help you decide which charity or charitable trust is eligible to claim Employment Allowance.

If, at the start of the tax year, 2 or more charities (including Community Amateur Sports Clubs) are connected with each other, and those charities would otherwise each qualify for the Employment Allowance, only one of those charities can qualify for the Employment Allowance for that year. It is up to the charities concerned to decide which one of them will qualify for the Employment Allowance.

The rules in place for determining whether charities are connected with each other are similar to the ‘connected charities’ provisions in section 5 of the Small Charitable Donations Act 2012.

Charities will be connected with each other for the purpose of the Employment Allowance only if their purposes and activities are the same or substantially similar and they are controlled by the same or connected persons.

1. What affects entitlement to the Employer Allowance

Charities connected or charitable trusts controlled by another trustee will determine whether one charity or all connected charities are entitled to claim Employment allowance.

1.1 Charities that are connected

Where charities are connected with substantially the same activities then only one is entitled to the Employment Allowance.

In choosing which charity or company claims the Employment Allowance you should consider choosing the organisation that is likely to generate the highest amount of employer Class 1 National Insurance contributions in the tax year. This is because there will be no entitlement to any unclaimed balance due (up to the annual maximum of £2,000) based on the other connected organisation’s employer Class 1 National Insurance contributions liabilities.

Where your organisation has set up 2 separate charities with different activities then they are not connected and both are entitled to the Employment Allowance.

1.2 Charitable trusts

A charitable trust is treated as being a company. Determining whether charitable trusts are connected is applied in broadly the same way for charitable trusts and charitable companies. There is also an element control applicable to charitable trusts, for example where a person has the power to appoint or remove trustees or the power to control the way in which the trustees carry out their functions.

A charitable trust is connected with another charitable trust if at least half the trustees of one charity are trustees of the other charity or are connected with persons who are trustees of that other charity. Provided that the charities activities are the same or substantially similar, then the charitable trusts are connected and will only be entitled to one Employment Allowance.

1.3 Trustees who control more than one charitable trust

If one trustee of your charitable trust controls your trust and fulfils the connected rules in respect of being able to control another charity, then they will only be entitled to one Employment Allowance where the purposes and activities of both trusts are the same or substantially the same. If however the purposes and activities are different then they are both entitled to the Employment Allowance.

Where one or more of the trustees of your charitable trust has the power to appoint, remove or direct the other trustees as to how to carry out their functions and they control another charitable trust, then the charitable trusts are connected. They are only entitled to one Employment Allowance where the purposes and activities of both are the same or substantially the same or if different then they are both entitled to the Employment Allowance.

If less than half of the trustees of your charitable trust are also trustees of another charitable trust with substantially the same activities, then they are both entitled to the Employment Allowance, as they do not have control of both charitable trusts.

1.4 Trustees appointed by the charity regulator

Where a charity regulator appoints a trustee this position is not considered when deciding the connection between charitable trusts based on the control held by trustees.